The challenge for Deere (DE) isn’t revenue growth. Revenue grew by 24% in the fiscal third quarter, the company announced on August 17.

Controlling costs is the issue. Operating income in the quarter rose by just 12.5%. Raw materials costs, the company said, will be $700 million higher in 2011 than in 2010. That’s a $100 million increase from the company’s forecast last quarter.

That didn’t stop Deere from raising its forecast for net income for the full fiscal year to $2.7 billion from the prior forecast of $2.65 billion. But that 1.9% increase in projected net income lagged the 2-percentage point to 4-percentage point increase in the company’s revenue targets for all of fiscal 2011. (Deere’s fiscal year ends on October 31.)

If Deere is a core position in your long-term portfolio I don’t think you need to sell—the long-term trends toward higher global incomes and greater consumption of grains and grain-fed meat remain intact and Deere is a major beneficiary of those trends. (Deere is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ )

But I wouldn’t make adding to positions here my No. 1 portfolio priority either. Read more

Update Deere (DE)

The market apparently decided to be disappointed with Deere’s (DE) quarterly financial report issued before the open yesterday, May 18. The stock was down 1.5% as of noon New York time yesterday. And while it’s in the green today, it’s not in the green by much.

I think I understand why (and I care because Deere is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ ), but you sure have to dig below a lot of good news to find anything to be negative about.

But let’s get the shovels ready, shall we, and see if we can uncover the grounds for disappointment. Read more

Farm stocks drop on what is, in my opinion, an overly optimistic forecast from the USDA–buying opportunity ahead

The May 11 crop forecast from the U.S. Department of Agriculture knocked the chaff out of the grain market. Corn fell in price by the most allowed on the Chicago Board of Trade and wheat and soybean prices followed downward.

The cause of the plunge? The USDA said that grain inventories at the end of the harvest year will be larger than expected. Corn stockpiles will climb to 900 million bushels, for example. That’s a significant 23% higher than the 730 million bushels this year. Of course, this year’s 730 million bushels is the lowest stockpile in 15 years.

You can understand why that kind of switch would have sent some commodities traders scurrying to take profits. The price of corn has doubled in the last year as traders bet that the slim margin of error represented by that 15-year low in stockpiles would generate enough fear of shortages to keep prices rising.

What’s less easy to understand is how the USDA got to its new projections. I think they include some wildly optimistic assumptions. And if I’m right, the current sell off in farm-related stocks such as Deere (DE), down 4.4% from the May 10 close to the close on May 12 (that’s two days in case you’re counting), and Potash of Saskatchewan (POT), down 5.7% in those two days, could turn what was already a pretty good buying opportunity into a great buying opportunity in the sector.

Here’s what the USDA said that leaves me scratching my head. Read more

Update Deere (DE)

Good times for the world’s farmers and for Deere (DE) will continue, Deere said in its fiscal first quarter 2011 earnings report released on February 16, before the New York stock markets opened.

The company’s earnings reports get scrutinized as much for Deere’s projections on farm prices as they do for the company’s own financial results. And Deere’s news for farmers was all good. The company raised its forecast for the 2011/12 price of corn to $4.90 a bushel from its earlier forecast of $4.35 and its forecast for wheat to $6.35 a bushel from $5.50.

Not that the company’s own results were anything shabby. Read more

Update Deere (DE)

Valuing a cyclical stock such as Deere (DE)—which reports fourth quarter fiscal 2010 earnings on Wednesday, November 24–is always difficult. You have to figure out where the company is in the revenue cycle from peak to trough and back again. And you have to figure out how long the cycle will last.

In Deere’s case, the Wall Street projection is that the company is about to hit the top of the cycle. Earnings growth, according to Wall Street, will hit an astonishing 311% in the fiscal year that ended in October 2010 and then head downward, as the cycle peaks to 35% in the quarter that ends in January 2011 on its way to just 16% growth for the fiscal year that ends in October 2011.

That projected peak seems early to me, considering that the company’s business really only bottomed in late 2008 through late 2009, and considering that farm prices seem to be headed higher, not lower, for the foreseeable future. According to the Association of Equipment Manufacturers, sales of four-wheel drive tractors were up 83% in October 2010 from October 2009 and sales of large row-crop tractors climbed by 54%.

That sounds like acceleration rather than a peak to me. Read more