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On the Call: Deere & Co. talks about drought

The Associated Press

Farm and construction equipment maker Deere & Co. reported on Wednesday that its first-quarter net income rose 22 percent, largely because of growing sales of farm machinery. Revenue rose almost 10 percent.

The world's largest maker of agricultural equipment also raised its earnings outlook for the year slightly to $3.3 billion, and it predicted that sales would rise about 4 percent in the second quarter and 6 percent for the full year.

The optimism is being driven by growing farm equipment sales, which is fueled by higher U.S. crop prices, growing yields and rising farm income.

On a conference call with industry analysts Wednesday, Susan Karlix, manager of investor communications, talked about the company's forecasts and the impact of the 2011 and 2012 droughts.

"Corn, soybean and wheat prices reflect the production shortfall caused by the weather-driven events that affected 2011 and 2012 seasons and continue to support equipment sales," she said. "At this time of the year, it is hard to determine what that 2013-14 crop year will bring. Clearly the upcoming growing season has a lot of questions around it."

"Among other things, it should be noted that existing moisture conditions show the U.S. drought continues to be of significance. Research, however, shows that the moisture situation going into the growing season has virtually no impact on the final outcome. The primary point is that temperature and moisture levels experienced during the key growing season are the most important factors in determining yield. As is our custom at this time of year, our estimates for the 2013-2014 crop year assume normal weather and trend yields."

She said Deere predicts corn yields will rise 31 percent while soybean yields will be up 12 percent this year.

The company also estimates that 2012 farm cash receipts rose to a record $389 billion, and it predicted that figure would rise to $393 billion in 2013 based on strong crop prices, higher yields, and increased livestock receipts.

"Current and prior year cash receipts are the primary driver of equipment purchases in the U.S. market," Karlix said. "With cash receipts at record levels, this bodes well for future farm prospects."