(Bloomberg) -- For the top maker of farming machinery, Deere & Co., demand to replace aging tractors and harvesters will continue outpacing the industry’s ability to deliver.
To be sure, farmers are cashed up as droughts and Russia’s invasion of Ukraine keep crop prices high, underpinning an “extended” replacement cycle along with fast-filling order books and a forecast of more record profits for Deere, according to Chief Executive Officer John May.
But manufacturers will continue to endure fragile supply chains, May and his team said during Wednesday’s earnings call, with pockets of improvements coming slowly and more work needed to clear partially completed machines from inventory.
“We’re not assuming that our operations return to normal levels of productivity and efficiency in our forecast,” Chief Financial Officer Josh Jepsen told analysts on the call.
Nor is cost inflation likely to peter out any time soon. Some relief in raw material and freight costs will be canceled out by pricier labor, energy and components in fiscal 2023, with production cost increases expected to be in the mid single digits. Sales are set to more than compensate, with Deere forecasting an 11% increase in prices for its large agriculture segment.
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