Deere & Co., the world’s largest manufacturer of agricultural equipment, plans to deliver fewer combines in the U.S. in fiscal 2012 as demand falls amid a glut of used machinery, dealers said.

Sloan Implement Co., a Deere dealer with 17 sites in Illinois and Wisconsin, said its combine allocation will be reduced by about 10% for the year starting November 1. Southard Implement Co., a dealer in Iowa, said it will get as many as 16 machines after selling 27 in 2011. Inventories of used combines, which can cost more than $200,000 each, are “bulging,” company owner Larry Southard said.

“The agricultural community has had five years of very profitable times,” Southard said in a telephone interview. “These farmers have bought so much equipment. We are saturating the market.”

Combines account for about one-third of Deere’s North American farm-equipment revenue and are its “highest-margin” products, Stephen Volkmann, a Jefferies & Co. analyst, said today in an interview. The U.S. and Canada comprise Moline, Illinois-based Deere’s largest market.

Ken Golden, a spokesman for Deere, declined to comment on production plans. He said the company won’t talk about its outlook for 2012 until after the 2011 fiscal fourth quarter.

Deere fell 1.8% to $69.80 at the close in New York. The shares have declined 16% this year.

Combine Sales

U.S. sales of self-propelled combines dropped 16% to 1,256 in September from a year earlier, the Assn. of Equipment Manufacturers said in an October 11 report. The decline in Deere’s combine sales last month outpaced the industry as a whole, the company said in an audio commentary on its website.

Deere and Duluth, Ga.-based AGCO Corp. (AGCO), which is the third-largest farm equipment maker, may see North American sales drop in the next two years after agricultural incomes in the region peak, Volkmann, who’s based in New York, said in an October 3 report.

Deere told dealers it’s reducing the allocation of combine production capacity for the U.S. market by as much as 20% in fiscal 2012, Andrew Casey, a Boston-based analyst for Wells Fargo Securities, said in an October 10 report. Rick Linenburg, the owner of dealer Vincennes Tractor Inc. in Vincennes, Indiana, said in an interview he hasn’t seen cuts so deep in at least 10 years.

‘Pent-Up’ Demand

The rally in crop prices four years ago boosted farmers’ earnings and released “pent-up” demand for machinery, said Greg Peterson, the founder of, a website that monitors prices of farm machinery at auctions. Demand for new combines has been “so good for so long,” he said.

Demand for one- to three-year-old combines largely was met by early 2010, Peterson said in an interview. His index tracking the value of used combines fell to 6.7 — compared with a maximum measure of 10 — in the second quarter, the lowest since mid-2006. It was 6.9 in the third quarter.

“Downside risk” in markets for large agricultural equipment “could be significant in light of low fleet ages and more aggressive dealer incentive programs, Timothy Thein, a New York-based analyst at Citigroup Inc., said in an October 11 report.

Still, U.S. farm income will jump 31% this year to a record $103.6 billion because of higher crop and livestock prices, according to the U.S. Department of Agriculture.

‘Acceptable’ Inventories

Demand is “hot” for tractors, planters, and tilling and grain-handling equipment, Peterson said. Deere’s revenue in the coming year from the U.S. combine market may be similar to 2011 because of price increases, Casey said.

Manufacturers such as Deere have learned to smooth out the cycles and better balance production with demand, Peterson said. Deere is monitoring the used-combine market and says “the level of activity is high, pricing is holding up and inventory bands are within acceptable levels,” Jamie Cook, a New York-based analyst for Credit Suisse Group, said in an October 4 report, citing a meeting with Deere management.

Deere’s plan is “a pretty smart move,” said Tom Sloan, chief executive officer of Sloan Implement. “It keeps up the pricing.”

Deere’s fiscal fourth-quarter earnings per share will rise to $1.43 from $1.07 a year earlier, according to the average of 12 analysts’ estimates compiled by Bloomberg.

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To contact the editor responsible for this story: Simon Casey at