Stock story: Deere & Co

Innovating for farmers. (Reading time: 2 mins)

Stock story: Deere & Co

July 2021

Deere & Co is the home of the iconic and trusted equipment manufacturing brand, John Deere. Established in the US in the 1830s by John Deere, the company has evolved from manufacturing metal shovels and ploughs to being a leading global manufacturer of agricultural, construction and forestry equipment.

Since its founding, Deere has been an innovator. In its early days, the company developed materials and tools to improve efficiency on farms. While more than 180 years have passed, and Deere’s equipment portfolio has diversified and is available outside the US, Deere is still known for its innovative products and improving efficiency for customers. This strength in brand and quality of product are some of the many advantages of Deere – and why farmers stick with the company. (Recent surveys have identified that 80% of Deere agricultural customers describe themselves as brand loyal compared with only 35% to 45% of customers of Deere’s competitors.)

Deere’s agricultural equipment business is a key driver of its high business quality. Deere has a dominant market position, a best-in-class independent dealer network, economies of scale in manufacturing, research and development, and immense brand equity with farmers.

Deere’s dealer network provides an unrivalled service offering, a feature valued by its customers. The support and superior service this network offers allows farmers to better manage the vagaries of the weather and yield uncertainty and has enabled the company to cement the loyalty of customers and its high market share in a sector where product efficacy and the timing of production cycles are mission critical.  

Deere’s innovative culture and dominant industry positioning have been essential to withstand disruption and maintain its market position. Deere enjoys a first-mover advantage in the development of electric agricultural equipment. We expect economies of scale and capital advantages in research and development to preserve the company’s market leadership into a future in which onerous emission standards will drive a transition away from internal combustion engines.

Deere is also innovating in sustainable farming. The company has been living up to its ‘green branded’ agricultural equipment, increasingly being recognised in the industry for its leading advancements in this sphere. Through technology embedded into its machines, Deere is helping farmers reduce their environmental footprint through helping them to optimise output and use the land more sustainably. Deere technology monitors the soil, water and air, assisting farmers on how to better manage their crops. The technology helps farmers increase yield, save time, save on fuel, save on seed and save on herbicides. For example, a farmer on 6,500 acres could save over 3,500 litres of herbicides, over 6,000 litres of water and avoid 400,000 kg of CO2 emissions over the course of a production cycle. These are meaningful numbers.

Deere is also implementing programs to reuse parts, reduce waste and minimise the need to call on new resources. Additionally, Deere monitors machinery and can better time its product servicing to optimise run-time and lengthen the replacement cycle. These are just some of the many initiatives in which Deere is investing to provide benefits to their customers and enable sustainable change in the equipment machinery.

With its customer base largely within the construction and agriculture sectors, Deere is a cyclical company. Demand for Deere’s agricultural equipment exhibits meaningful correlation to cash crop receipts and farmer profitability, which are functions of agricultural commodity prices, government policies, exchange rates, interest rates, economic conditions and weather. For Deere’s construction equipment, demand depends on construction spending, which tends to follow local economic cycles.

Overall, Deere is a high-quality business that is adapting rapidly toward the tailwind in sustainable farming – including the harnessing of technology to preserve scarce resources and augment farming yields. Deere also provides diversification to the portfolio with exposure to the agricultural cycle vs the economic cycle.

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