Global agricultural equipment maker Deere & Company (NYSE: DE) stock is weathering the bear market sell-off relatively well with shares down only (-4.7%) on the year compared to (-25%) for the S&P 500 index (NYSEARCA: SPY). While Deere also makes heavy machinery like Caterpillar (NYSE: CAT) and Terex (NYSE: TEX) for construction, its machines are mostly geared towards farming. Just like its peers, the supply chain constraints, inflationary pressures, and strong US dollar impacts are being felt by Deere also. However, Deer is benefiting from the megatrend of growing populations and the need to feed them and the depletion of arable land. Deere is driving agricultural technology (AgTech) innovations like its fully autonomous tractor and helping it attain the moniker of the “Tesla (NASDAQ: TSLA) of farming”. Along with AgTech companies like Archer Daniels Midland (NYSE: ADM), CNH Industries (NASDAQ: CNHI), and AGCO (NASDAQ: AGCO), Deere is helping to usher in the farm of the future.
Driving the Agriculture Boom
The agriculture market saw a big spike again this year due to rising inflation and the Ukraine war. Ukraine is a top exporter of fertilizers, wheat, barley, corn, sunflower seed and oil. The conflict has already caused negative impacts on Ukraine and Russia’s commodity exports driving global supply shortages. While other countries are expanding their output capacity to fill the gap, the rising input costs may become too prohibitive. The Food and Agricultural Organization of the United Nations (FAO) estimates the global supply gap created by the war could raise international food prices 8% to 22% above elevated baseline levels. Deere expects a heavier back-end loaded year due to the heavy demand and constrained supply.
Shaping the Future of Farming
Deere is instrumental in shaping the future of farming. As the world runs out of farmable land, the need for sustainability is driving the demand for precision agriculture. Deere introduced its fully autonomous self-driving tractor at the 2022 Consumer Electronics Show. Existing GPS-equipped tractors can add-on the self-driving capability and new tractors can come equipped with them. The Company continues to push the boundaries of technological innovations in farming to bolster output, efficiency, and profitability by weaponizing precision agriculture. For example, the autonomous tractor immediately helps overcome labor shortages and improves efficiency. It’s advanced herbicide sprayers can distinguish between crops and weeds to optimize inputs to generate higher margins. It’s predictive and data analytics software is expected to bring in nearly 10% of total revenues with higher margins than machinery.
Here’s What the Charts Say
Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for DE stock. The weekly rifle chart peaked its most recent swing high near the $394.41 Fibonacci (fib) level before sinking back under the weekly 50-period moving average (MA) support. The weekly stochastic reversed back down off the 80-band. The weekly uptrend has stalled with a 5-period MA sloping down at $351.42 for a crossover and breakdown attempt through the 15-period MA at $339.19. The weekly upper and lower Bollinger Bands (BBs) sit at $405.98 and $272.10, respectively. The weekly market structure low (MSL) buy trigger support sits at $303.98. The daily rifle chart has been in a downtrend, but the 5-period MA could be flattening at $337.74 against the falling 15-period MA resistance at $349.91. This sets up a make or break as the MAs attempt an inverse pup breakdown and stochastic stalls at the 20-band to attempt a mini pup bounce. The daily 200-period MA resistance sits at $363.32 while the daily lower BBs sit at $320.01. Attractive pullback levels sit at the $328.10 fib, $316.50 fib, $303.98 weekly MSL trigger, $290.16 fib, $284.20 fib, and the $270.44 fib.
A Swing and a Rare Miss
On Aug. 19, 2022, Deere released its fiscal third-quarter 2022 results for the quarter ending July 2022. The Company reported earnings-per-share (EPS) profits of $6.16 falling short of analyst estimates for a profit of $6.68, by (-$0.52). Revenues climbed 24.8% year-over-year (YoY) to $13 billion, beating analyst estimates for $12.84 billion. Production costs were elevated by material and freight. The Company expects U.S. and Canada industry sales of large ag equipment to rise 15%. Supply constraints resulted in partially completed machines, which should be completed in the back half of the year as parts get procured.
Improving Supply Chain Constraints
Deere President of Worldwide Production and Precision Ag addressed the supply chain challenges, “We continue to prioritize getting equipment out to our customers. While past due deliveries from suppliers have declined a bit, they’re still at elevated levels. Missing parts and late part deliveries result in rework to complete partially built machines and contribute to production inefficiencies and higher overhead costs. We’re able to achieve the higher line rates despite the continued difficulties and constraints within the supply chain. We’re proactively working with our supply base to obtain allocations and improve on-time deliveries of parts, looking for opportunities to dual-source or providing resources to address constraints.”
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