John Deere Chief Says Commodity Prices Boost Iconic Company
By DAN PILLER, The Des Moines Register
MOLINE, Ill. -- After focusing on moving earth for agriculture and industry for most of its 174-year history, Deere and Co. now is fighting for its place in the skies.
Deere chairman and chief executive officer Samuel Allen has aligned the manufacturer with military and aviation interests against a broadband proposal by Virginia-based LightSquared. Allen said LightSquared's proposal for 40,000 new cellphone towers in rural areas would push the global-positioning systems in farmers' tractors and combines further down the band, compromising movements across the fields.
"It's not a money issue for us; we contract with GPS providers," Allen said. "But precision agriculture is vital."
Lightsquared has said it would resolve potential interference for most GPS users. The Federal Communications Commission is due to report on the matter later this summer, but Allen thinks ultimately Congress will make the final call.
The engineer in the 57-year-old Allen is comfortable he's on the right side of the technology in the Lightsquared dustup. What makes him nervous is the politics.
"What I worry about more than anything in this business is government action, particularly if it comes suddenly," said Allen. "We can handle volatile commodity prices and mechanical and engineering problems. It's always the public issues that worry me."
In a wide-ranging interview at Deere's Eero Saarinen-designed corporate headquarters in Moline this month, Allen talked about Deere's business, the agriculture industry, golf and other topics.
To ease his edginess about the vagaries of politics, Allen is confident that high commodity prices will continue and will be something of a buffer against the expected changes in ethanol tax policies or the farm bill next year.
As head of the world's biggest maker of agricultural equipment, Allen is automatically a senior statesman in agriculture.
The boom in agriculture and partial recovery of the industrial equipment sector has put Deere Financial, the company's credit arm, on stronger ground.
But Deere Financial has developed a unique problem.
"We have to be creative to find ways to get financing business for agricultural customers, because they are in such good cash position now that our biggest competition for credit business is the farmer with cash," Allen said.
Allen is a Big Green lifer who joined the company in 1975 after receiving an industrial engineering degree from Purdue University.
He succeeded Robert Lane as CEO in 2009 after being president of Deere's Worldwide Construction and Forestry Division. Earlier he oversaw human resources and credit operations and from 1999 to 2001 was Deere's senior officer in China.
Allen's first year as CEO in 2009 was rocky. A dip in agricultural commodity prices and the construction recession forced Deere to temporarily lay off more than 1,400 workers.
While agricultural equipment sales held their own in the post-2008 recession, a plunge in sales of industrial and forestry equipment to 50-year lows took Deere's stock down from $73 per share in mid-2008 to less than $40 per share when Allen became CEO 49 months ago.
But in the last year Deere has caught a break as corn, wheat and cotton prices have doubled, soybeans are up more than 50 percent and construction activity has picked up.
Deere's shares reached $92 per share earlier this summer and the company has forecast double-digit increases of sales along most of its product lines.
Numbers like those impress shareholders and analysts, as well as dealers and farmers.
Second-generation Deere dealer John Sindt of Mount Vernon now has six locations in eastern Iowa. "Bob Lane added a lot of value for shareholders, but I think Sam is a little more in touch with dealers and customers," he said.
"What helps sell Deere in Iowa is how big and visible the company is around the state," he said. "There are all those plants and so many employees, and people understand that."
Allen's low-key approach won over Mike Brelsford, a Perry-area farmer. Brelsford had reason to appreciate Deere's pioneering approach to equipment.
Brelsford was one of the first buyers of Deere's 48-row planter, and the machine paid off this spring when corn planting was delayed until late April by wet, cold conditions.
"We started on April 30 and got our entire corn and bean crop, over 5,000 acres, planted in 10 days," said Brelsford. "That included several moves of 30 miles or more."
Brelsford was just an extreme example of the power of modern big equipment agriculture, which uses 24 and 16-row planters pulled by tractors with 500 or more horsepower and 16-row cornheads on combines.
"Industrial" agriculture is a frequent target for critics. But to Brelsford, bigness is simply an answer to a problem.
"It's so hard to get help these days, you need the big equipment," said Brelsford.
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"Thoughts from chairman Sam Allen@
By DAN PILLER
The Des Moines Register
On agriculture as a target for critics, including nutritionists, environmentalists and rural sociologists:
"Nobody likes to be attacked, but I'm not sure it's worse for agriculture than anybody else. Everybody seems to be a target these days. We're so polarized."
On the prospect of cuts in federal farm programs:
"I think robust commodity prices will continue and help farmers through changes. What is important is that when changes or cuts are made in farm programs that they be done gradually, with visibility and avoid sudden shocks."
On the future of ethanol:
"We're probably near the peak of corn-fed ethanol production. It's been hard to articulate the true message of ethanol. Other forms of biofuels, such as cellulosic ethanol, probably aren't going to come as fast as some would like."
Is agriculture in a speculative bubble that will burst?
"I really don't think so. There is a long-term trend of higher demand, and it's not just population growth. Asian nations want more protein. World food supplies must double by 2050. For commodity prices, the highs will be higher and the lows will be higher, too."
What would worry you the most about agriculture's future?
"Any sudden government policy change. We can deal with volatile markets and land prices and everything else. Political changes can come without warning."
On the size of farms and equipment:
"The biggest issue for agriculture, whether it's in Russia, Germany, Brazil, China or Iowa, is the shortage of labor. Farms are getting bigger so bigger equipment is need. We'll sell more 48-row planters and 16-row corn heads, and tractor horsepower will continue to increase."
On the rise of smaller, "buy fresh, buy local" farms:
"It's not a passing fad. We take smaller farms seriously and want to be a supplier to them, as well. Of course, the equipment will be smaller, but Deere has it. I would add, however, that big production agriculture can be sustainable as well."
Everybody talks about China and its impact on food. You were there in the late 1990s. What's happening?
"The Chinese are already in our grain markets. When I was in China in 1999 they used to talk about being 98 percent sufficient in their domestic production. But they have lost arable land, and you don't hear that kind of talk there any more."
