Deere Execs on Ethanol and Commodities

Five key quotes from Deere & Co. FQ408 conference call: (DE)

Commodity forecast:

For the first time the company saw more than 50% of its AG [agricultural equipment] sales come from markets outside the U.S. and Canada.

For the 2009/2010 crop year, commodity prices remain very attractive... Forecast prices, though down from recent levels, are higher than the past several years. Further, they are at levels that permit our farm customers to earn a good return.

U.S. farm cash receipts for 2008 and 2009 are at good levels and up significantly from most recently as 2007… Our outlook for industry sales of agricultural equipment in the U.S. and Canada is up approximately 5% in fiscal 2009. The increase is being led by higher sales in large tractors and combines, partially offset by lower industry sales for cotton equipment, small tractors, and equipment commonly used by livestock producers [who] have been hurt by the economic slump… largely because of higher feed costs.

Material costs are extremely difficult to forecast:

In 2009, our forecast calls for material price increases in the range of $500.0 million to $900.0 million. The sizeable range… is warranted [because] the extreme volatile swings in commodity prices that have occurred over the past year have made projecting costs very challenging. [Also,] recall our material cost increases were back-end loaded in 2008. They significantly lagged the commodity market on the way up and will do so again on the way down.

In the second half of the year, depending on whose forecast you are looking at, sheet steel could be anywhere from $500 to $900 a ton.

Alternative energy: Ethanol and wind investments:

A: President-Elect Obama certainly was very supportive of renewable fuels, renewable energy… on the campaign trail.

Q: Obviously that is a huge market for row-crop farmers, particularly corn farmers. So that is baked in your assumptions that there will be continuing strong support for ethanol?

A: That certainly would appear to be case and additionally baked into our assumptions is the fact that we have still about 2.0 billion gallons of ethanol capacity that is under construction and is yet to come on. And actually in the last quarter we saw just nearly 2.0 billion of capacity in ethanol in the U.S. come on line in production.

The wind production tax credit was extended in early October and it runs now through the end of December of 2009. Our capital investments for wind in 2009 really do not reflect a pull back on our belief in the renewable wind business, but just simply that we are doing that to be prudent in use of our capital in the current environment.

Troubled South American, Russian markets:

In South America, our outlook is for the industry to be down 10% to 20% in fiscal 2009. Major factors weighing on the region are access to credit in Brazil and the drought conditions that plagued Argentina early in the planting season… In Brazil last year, soybean farmers provided about 25% of their own crop input funding. This year it is twice as much, at 50%.

We had seen just a handful of cancellations in the U.S. and Canada, virtually nothing in Europe. We have seen some in South America and in Eastern Europe, into the former Soviet Union and in that case it really is related to access to credit, which is a very significant issue there.

Global Forestry and Construction market:

The Chinese government’s $500.0 billion plus stimulus plan, announced earlier this month, adds further support to this market. The plan is aimed at highway, railroad, and airport infrastructure spending.

Two months ago we announced… our intent to form a joint venture in India with Ashok Leyland. India is the world’s largest market for backhoes. Initial production is planned for 2010.

Comments

[NOWHEREMAN:]

We sure are going to use a lot of ethanol in our CNG vehicles. Does ethanol blend well with diesel? How much is ethanol costing consumers currently, wouldn't gas prices be even lower without it?

Maybe we will be able to export it to Brazil.

Inquiring minds want to know.

2008 Dec 02 08:59 AM

[wsd:]

ethanol from corn is one of the biggest boondogles in history. it takes 3 gallons of water to make one gallon of ethanol. there is a huge amount of waste. IT has a BTU value that is 72% of gas , and it cost more then gas. ITs all based on a permament government subsidy.

2008 Dec 02 09:55 AM

[applesauce:]

BRAZIL IS ENERGY INDEPENDENT AND IF OUR SELF SERVING CONGRESS WOULD DROP TARRIFFS WE COULD BE IMPORTING SUGAR FOR FUEL FOR FAR LESS THAN INEFFECIENT CORN ETHANOL.
THE WORLD IS STARVING AND WE BURN CORN, BRILLIANT.

2008 Dec 02 09:57 AM

[tuckerin:]

Corn can't be too pricey, we still use corn sweetners instead of natural sugar, just depends on who has the best lobby org. in DC

2008 Dec 02 10:18 AM

[Engineer:]

When talking about ethanol here are a few facts to keep in mind:

-Much of the remains of distillation become animal feed - thereby freeing up other crops (and acerage) dedicated to such.

-The water used to produce ethanol returns to the environment as wet distillate which evaporates or is ingested by animals, and/or as a product of combustion when ethanol is burned.

Also here's another question that inquiring minds might want to know:

If we are producing more ethanol than ever before... why aren't there any "tortilla riots" going on right now?

2008 Dec 02 11:08 AM

[misolarman:]

Praire grass is the most efficient by far in producing ethanol. It is six times more efficient than corn and twice as efficient as sugar cane. It also can survive without extra watering or fertilizer.

The cool technology is using algea. Just Google 'algea biofuel' or check out my blog from mid November at michigansolarsolutions...

2008 Dec 02 11:08 AM

[unclej0:]

The ethanol subsidy is a national disgrace.

2008 Dec 02 11:11 AM

[cashflowtrader:]

It is too bad Bush had to push ethanol because he needed votes in 04. How about easing consumption by making cars lighter? Duh. Ethanol only increased value of farmland for owners in Midwest. That is about the only good thing that has come out of it. Now we have big f problems.

2008 Dec 02 03:59 PM

[NOWHEREMAN:]

Ethanol fires Can Not be put out by conventional means, specialty chemicals which most fire departments do not carry, are required.

Nitrous Oxide, N2O, is as bad for the environment as CO2. One Greenhouse Gas is substituted for another.

The Fertilizer used to grow corn is Nitrogen based and derived from Natural Gas, when allowed to mingle with the water table, it is capable of removing ALL of the oxygen therein killing everything requiring oxygen. Water run offs have created Dead Ponds accross the Midwest.

The water does Not Return to the Environment uncontaminated. Special water run off lanes are built to specifically handle the water which has been contaminated.

I am not an Engineer. I do not purport to know everything.

The aforementioned items are probably Tainted by my own opinions. But I firmly believe that Burning Food leads to the starvation of others.

IMHO



Nitrogen

2008 Dec 03 03:09 AM

[john s. gordon:]

cashflow - cars are heavier because of all the federal regulations requiring all that extra stuff on board.

bring back the 1965 corvair Mk.2 - a mighty efficient automobile.
> jack

2008 Dec 03 08:42 AM

[ronk:]

The number is accually 2.5 gallons of water to make 1 gallon of ethanol. Compared to 9 gallons to make 1 gallon of gasoline or 512 gallons of water to make a set of 4 tires for your car or 100 gallons to make each Sunday paper. Water here is quit efficient. Face it ethanol is made from the sugar portion of corn, the the protein part is fed to livestock. Sugar does not grow meat protein does. 56% of our corn crop goes to livestock all sugar should be removed first. We should double the number of plants and acheive this goal.

On Dec 02 09:55 AM wsd wrote:

> ethanol from corn is one of the biggest boondogles in history. it
> takes 3 gallons of water to make one gallon of ethanol. there is
> a huge amount of waste. IT has a BTU value that is 72% of gas , and
> it cost more then gas. ITs all based on a permament government subsidy.

2008 Dec 03 01:38 PM

[Diegojames:]

As a chemist and pharmacist I am amazed that algae produces a fuel. Have you ever enjoyed a salt water aquarium; not much gasoline there. And fuel from prarie grass. If you can ferment that why is the liquor industry not making ethanol from grass and selling it as a VEGAN fuel?????
James
Porter Ranch, California

2008 Dec 08 12:24 AM