The Question for Deere?
12/03/2014 12:01 am EST
Earnings for this commodity-dependent company were about as bad as expected and MoneyShow's Jim Jubak shares his thoughts on when we might expect a turnaround.
On November 26, 2014, Deere (DE) reported, well, the kind of lousy earnings and sales growth that we all expected at this point in the commodities cycle; that we've got a huge, huge harvest, record harvest of wheat and corn, depressing prices, so we've gone from $8 a bushel down to $4 a bushel.
All that means is farmers have less disposable income, even though they're producing bumper crops and that's generally bad news for equipment makers and we've seen that from Deere, from Caterpillar (CAT), and around the world.
Okay, the real question here, and this is what we're trying to figure out, what Deere's trying to figure out, is how long this part of the cycle goes on. The consensus that I've seen is that it takes about two years after this kind of a bottoming of commodities for it to turn around, so if that's the case, then we're really looking at 2015 being a really pretty lousy year for machinery producers, agricultural equipment makers, fertilizer makers before we see a bottom, which would then make 2016 look like a pretty good year, so that's what we're looking for here.
I think we're looking to try to find the bottom, which suggests that as cheap as many things are and as good a company as Deere is, and it's an extraordinarily well-managed company for the long-term, you're probably not seeing the point where you'd really like to make a buy yet.