Deere Embraces Next Wave of Farm Innovation Amid DownturnBy
Amid digital ambitions, company opens San Francisco office
Tractor maker may report uptick in quarterly profit on Friday
After mechanization in the 18th century and fertilizers, pesticides and genetics in the 20th, another wave of technological innovation is poised to revolutionize farming, and the world’s largest tractor maker wants a piece of the action.
Deere & Co. is making a major bet that the next big gains in agricultural productivity will come from harnessing big data to help farmers decide when to sow, nourish and harvest their crops. Amid a backdrop of low commodity prices and depressed farm-machinery sales over the past two years, the company has bought one manufacturer of high-tech planting machinery and acquired a majority stake in another. It opened an office in San Francisco this month to get closer to Silicon Valley.
“It’s arguably the next big wave in agricultural productivity,” Matt Arnold, an analyst at Edward Jones & Co. in St. Louis, said in an interview. "It’s certainly an area of focus."
Still, Deere’s efforts suffered a setback earlier this month when its $190 million acquisition to buy a business that optimizes crop planting was nixed by Monsanto Co., the seller. The U.S. Justice Department sued to block the deal in August, citing antitrust concerns. So far, analysts and investors have been unable to gauge how much revenue Deere’s technology ventures generate, said Stephen Volkmann, an analyst at Jefferies LLC in New York.
The company may give further guidance on its high-tech ambitions when it reports fiscal second-quarter earnings on Friday before the start of trading. Profit excluding one-time items was $1.68 a share in the three months through April, up from $1.56 a year earlier, according to the average of analysts’ estimates compiled by Bloomberg. The shares fell 0.6 percent to $112.53 at 12:57 p.m. in New York.
A spokesman for Moline, Illinois-based Deere declined to comment on its financial performance, tech revenues and outlook ahead of the earnings report.
Deere is undeterred by the failure of the Monsanto deal and is still on the hunt for similar deals, according to the head of its technology ventures.
“That was one piece in a really big puzzle that we’re putting together," John Stone, senior vice president of Intelligent Solutions, said in a May 12 interview.
Cash-strapped growers have slowed purchases of Deere’s signature green and yellow equipment amid a prolonged agricultural downturn. Farm income is set to decline for a fourth year, the longest streak since the late 1970s. On a seasonal basis, North American farm tractor inventories are the second-highest on record.
This presents a challenge for Deere but also an opportunity, because while farmers are under pressure, their need for improved efficiency could translate into more sales for the 180-year-old-company’s most advanced machinery. For example, its AutoTrac system includes an auto-steering kit and a monitor that lets farmers plot the most accurate course in fields. And there’s Deere’s application program interface, or software platform, which allows farmers and companies to access and share information.
Agricultural innovation is entering a fourth phase, Rabobank said in a May 16 report, with a shift toward smarter hardware, remote sensing and analysis. Deere’s bet is that this new market segment, known as precision farming, will develop further.
“That’s the passion, that’s what’s driving us now,” Stone said. “It does feel like precision agriculture is on the cusp of taking off in a big way.”