Deere & Co. (DE):Agricultural End markets Look Supportive -UBS

UBS analyst, Steven Fisher believes good weather domestically and adverse weather in remote regions bodes well for Deere (NYSE: DE).

Adverse weather is negatively impacting Brazilian corn production CONAB, Brazil's agricultural bureau, recently cut its corn production forecast by 4.6% to 76.2mln tons from 79.9mln tons previously. The USDA also noted in its June WASDE report that lower production in Brazil and fewer harvest days in Argentina have "improved the competitiveness of US corn" in the global marketplace. Brazil accounted for 13% of global (ex-US) corn production in 2015, and ~30% of exports (also ex-US).

US corn demand picture is improved In the monthly WASDE report released on 6/10, the USDA raised its estimate for 2015/16 corn exports by 5.8%, resulting in higher overall demand, lower ending stocks for the 2015 and 2016 growing years and higher price estimates. Based on trend line yields and March acreage estimates, 2016 stocks to use are forecast at 14.2%. We think a reduction in yield or acreage could reduce stocks-to-use and drive corn prices higher.

Forecasts are for an acreage shift from corn to soybeans vs. initial outlook The USDA is scheduled to report annual crop acreage on 6/30. Industry estimates are calling for a ~1.0 million acre reduction in corn plantings and a ~1.5 million acre increase in soybean plantings. Based on the USDA's most recent estimates of demand, we calculate that a 1 million acre reduction in corn plantings equates to an 8% decline in ending stocks. On 92-93m acres planted, a yield of 162-164 bushels per acre would reduce stocks-to-use to 10%, assuming no change to demand.

No change to Buy rating or price target of $94.00.

For an analyst ratings summary and ratings history on Deere click here. For more ratings news on Deere click here.

Shares of Deere closed at $84.83 yesterday.

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