Deere warns on Brazil currency as it falls into red

John Deere, the world’s biggest maker of agricultural equipment, sounded an alarm bell over the strength of the Brazilian currency on Wednesday, saying it had seen a sharp spike in loan defaults by Brazilian farmers and halving its forecast for farming income in the country for the coming year.

Deere echoed wider sentiment about the Brazilian currency. Goldman Sachs said on Wednesday that the real was the world’s “most overvalued” currency as a “wall of money” flooding into the country had more than offset the capital controls Brasilia imposed last month, when it introduced a 2 per cent tax on foreign purchases of equity and fixed-income assets.

Brazil is an increasingly important market for Deere, which is depending on emerging-market sales next year to make up for plunging demand in its traditional markets of North America and western Europe. The company expects agricultural sales to drop by about 10 per cent in North America over the next 12 months and up to 15 per cent in western Europe, while it forecasts that demand in South America will grow by up to 15 per cent.

However, Deere cut its forecast for farm income in Brazil next year to $2.7bn from the guidance of $5.4bn it issued in August. The company also pointed to a big increase in defaults on loans to farmers, with non-performing loans accounting for 1.56 per cent of its global agricultural credit portfolio, up from 0.27 per cent last year. “Seventy to 75 per cent of that is due to Brazil,” Ms Ziegler said.

Deere also reported earnings and a forecast for fiscal 2010 that fell short of Wall Street expectations. The company made a loss of $223m or 53 cents per share in the three months to the end of October, compared with a profit of $345m or 81 cents per share a year earlier.

The results included a write-down in the value of its landscape supply business and restructuring costs relating to job cuts. Without those Deere said it would have made a profit of 23 cents per share.

Ms Ziegler said the company’s forecast would have been even more pessimistic, but that it had upgraded its outlook based on better-than-expected sales this month.

The company said it expected profits next year of $900m, implying earnings of about $2.14 per share, well below analysts’ average forecasts of about $2.71.

Deere shares rose 2.5 per cent toat $53.57 in New York yesterday.