By Rajesh Kumar Singh
CHICAGO (Reuters) - Deere & Co on Wednesday reported a rise in quarterly earnings, defying Wall Street estimates, as higher crop prices, government subsidy payments and replacement demand lifted sales of farm machines.
The maker of John Deere and the world's largest farm equipment producer forecast net income of $3.6 billion-$4.0 billion for fiscal 2021 as it expects to benefit from improving conditions in the farm economy and stabilization in the construction and forestry markets.
The forecast is higher than a $3.3 billion estimate from analysts surveyed by Refinitiv and the $2.75 billion reported for 2020.
"Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment," said Chief Executive John May.
Deere's shares have gained 31% since its last earnings report in late August, buoyed by a turnaround in the farm economy. However, they were down 1.2% at $258.39 in mid-day trade Wednesday, in line with a retreat in the broader market.
The company said its early order programs for planter, sprayer and combines in the U.S. have posted double-digit growth. Orders for large tractors are also up.
With a pick-up in retail sales, inventory for both new and used machines has fallen to multi-year lows, Deere told investors on an earnings call.
Overall, industry sales of agricultural equipment in the U.S. and Canada - Deere's biggest combined market - are forecast to grow by 5% to 10% next year. Sales are also projected to increase in Europe and South America.
But Chief Financial Officer Ryan Campbell warned that supply constraints as well as labor force availability due to COVID-19 posed risks to Deere's 2021 earnings forecast.
Tightening grain supplies and strong demand from China have sparked a rally in prices for soybeans, corn and wheat. The rally marks a sharp reversal in fortunes for the U.S. agricultural economy after four years of global surplus grain stocks.
Meanwhile, record federal payments to farmers has led to the fastest growth in U.S. farm income in at least nine years.
A growing need for farmers to replace aging tractors and combines is also helping demand.
Deere's fourth-quarter profit came in at $2.39 per share, up 5% year on year. Analysts had expected a fall of 36%, a survey of analysts by Refinitiv showed.
(Reporting by Rajesh Kumar Singh; Editing by Jason Neely and Chris Reese)