Deere & Co., the world’s biggest farm machinery maker, dropped in early trading in New York after posting disappointing quarterly earnings and saying it will increase prices because of higher raw-material and freight costs.

The shares dropped as much as 3.3 per cent after the company posted fiscal second-quarter earnings per share excluding one-time items of US$3.14, trailing the US$3.31 average of analysts’ estimates compiled by Bloomberg.

While hailing a "broad-based improvement in market conditions throughout the world," Sam Allen, Deere’s chief executive officer, said Friday that Deere is grappling with higher expenses.

Those "are being addressed through a continued focus on structural cost reduction and future pricing actions.” he said in a statement.

The Moline, Illinois-based company said full-year net income, excluding one-time items, will be about US$3.1 billion, compared with a previous projection of US$2.85 billion. It also raised its projection for revenues from both agricultural and construction equipment.

In Deere’s agricultural-equipment segment, demand is being driven by farmers replacing tractors and combines. An expanding global economy is lifting sales of construction machines, which the company also manufactures. These cycles usually see multiple years of growth before there’s a peak, and they’re gaining steam, said Matt Arnold, an analyst at Edward Jones & Co.

“It’s young,” Arnold said of the upward swing in agriculture machinery, before Deere reported earnings. “It will gain momentum.”

Farmers may soon see improvements in grain markets. World stockpiles of corn, wheat and soybeans are forecast to fall, the U.S. Department of Agriculture said earlier this month, due to a combination of adverse weather and robust demand.

Allen said supply-chain bottlenecks were easing, as the company "made significant progress working with its suppliers to ramp up production."

Shares of Deere were 0.6 per cent lower at US$146 at 6:37 a.m. in New York.