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Ag giant Deere warns on Russia, Ukraine markets

Deere & Co cautioned over the dent to the former Soviet Union farm machinery from the knock-on effects of the Ukraine crisis as the farm machinery giant trimmed hopes for its full-year sales.

The US-based company, the maker of John Deere agricultural equipment, revealed a 9.5% drop to $980.7m in earnings for the February-to-April quarter, on revenues down 9.1% to $9.95bn, as lower crop prices curtailed farmers willingness to spend.

"Although the agricultural economy remains in a relatively healthy condition, farm income is forecast to be lower than last year," Deere & Co said, adding that the drop was "putting pressure on demand for farm equipment, especially for larger models".

The slowdown had proven notably acute in Canada and the US, where the group's overall equipment sales, including construction machinery, for the quarter fell by 12% year on year a sharp deterioration from the 3% rise reported for the November-to-January period.

Deere & Co stuck by a forecast of industry sales in the Canada-US farm machinery market falling 5-10% over its fiscal year, which ends in October.

'Down significantly'

However, Deere also highlighted a sharp decline in prospects for the former Soviet Union market, forecasting a bigger deterioration this year than the "slight" weakening it had forecast in February.

"Market conditions in the Commonwealth of Independent States have weakened and industry sales there are expected to be down significantly for the year," Deere said.

Besides a "general slowing" of economic growth, the group highlighted "ongoing restriction of credit availability" - an issue which commentators have highlighted in particular in Ukraine since the country's turmoil stepped up a gear in February with the ousting of Viktor Yanukovych as president, and the subsequent annexation of Crimea by Russia.

Furthermore, this year's crop is "at risk due to smaller planted area and less input use", Deere & Co said.

'Import policies affecting combine sales'

The US Department of Agriculture on Friday forecast a 10% drop Ukraine wheat production this year, and a 16% fall in corn output, thanks largely to a cut in fertilizers and agrichemical applications prompted by a slump in the hryvnia to a record low, raising the cost of imported goods.

However, Deere highlighted that policy issues were also affecting sales of imported farm machinery in some parts of former Soviet Union.

"Import policies [are] affecting combine sales in Russia, Kazakhstan and Belarus," the group said.

The caution contrasts with a more benign market view voiced separately on Wednesday by Canada-based grain storage maker Ag Growth International, which said that its customers in Ukraine had "not changed their view with respect to our capital projects".

"[The company's] plans for 2014 include a continuing significant amount of business in Ukraine," Ag Growth International said, adding that it had $70m in orders from Kazakhstan, Russia and Ukraine.

Kiev-based grains-to-chickens group MHP on Wednesday said that despite Ukraine's "challenging situation, domestic demand for poultry remained strong in the first quarter", adding that with its winter crops in "good condition", it expected a "strong harvest".

Sales hopes trimmed

Deere & Co deepened its expectation for the decline in full-year sales to 4%, from a previous forecast of a 3% drop.

However, damage to the group's shares was limited by the fact that this remains below the 4.5% drop that Wall Street had already pencilled in.

Furthermore, the group stuck by a forecast for full-year earnings of about $3.3bn, above the $3.12bn expected by analysts.

And its earnings for the February-to-April quarter, at $2.65 a share, beat market expectations of a $2.48-a-share result.

"Even in the face of moderating demand for agricultural equipment, Deere is well-positioned to deliver solid performance," said Samuel Allen, the Deere chief executive.

"We believe that our extensive investments in new products and new markets will provide strong support to our results and keep our strategic plans moving ahead."

Deere shares eased 1.3% to $92.40 in early deals in New York.

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