Deere Downgrade From UBS On Corn Price Concerns

Although corn prices have risen, UBS’ Steven Fisher does not expect any further meaningful upside to the prices during the current growing season.

Fisher downgraded the rating on Deere & Company DE from Buy to Neutral, while lowering the price target from $94 to $80.

Lower Corn Prices

Corn prices had risen in June to $4.40/bushel, leading to some incremental equipment sales in the industry. However, corn prices have declined to $3.40, and the analyst believes farm income will remain under pressure, as will the negative sentiment on the stock.

“We also assume that another year of low corn prices will be a drag on equipment sales,” Fisher mentioned.

Related Link: Barclays Warns Investors To Stay Out Of U.S. Machinery This Summer

Record Yield Likely

Expectations for an increase in corn prices are also fading, given that the weather in the U.S. Corn Belt has not been ideal, although it was “good enough” in July to keep the crop in good condition, which implies that there could be robust yields.

In fact, Fisher pointed out that the USDA’s estimates for yields and acreage suggest the largest ever U.S. corn crop.

In addition, the USDA forecasted corn prices of $3.40/bushel, from the $3.65 in 2015. Fisher expects a further 2 percent decline in agricultural equipment sales in 2016, based on expectations of lower corn prices year on year.

The FY17 EPS estimate for Deere has been lowered from $3.90 to $3.50.

Full ratings data available on Benzinga Pro.