Shares of Deere (DE) - Get Deere & Company Report were rising Monday following a bullish note from analysts at Baird who believe the macro agricultural environment will lead to higher demand for agricultural equipment.
The firm raised its price target on the company to $175 from $129 per share, representing a potential 15% upside from the stock's closing price on Friday. Deere was up 1.4% to $153.64 on Monday.
The firm also initiated the stock with an outperform rating.
"Corn prices and machinery demand are correlated, machinery volumes usually on a ~1 year lag vs. corn prices. Higher corn prices should boost demand for equipment late in the year and into 2020. Remember: higher prices = higher income (and tax liability)...equipment purchases are a great tool for farmers to reduce tax liability which combines with already present replacement demand," Baird analysts wrote.
Corn accounts for 25% of total U.S. crop receipts, making it the single-largest commodity to the farming economy, higher than soybeans (18%) and wheat (5%) combined.
"Through June 9, only 83% of corn acres had been planted, during virtually every other year corn would be 100% planted at this point. As a result, nearly 15 million acres were yet to be planted for the week ending June 9," Baird's note said.
The upshot is farmers have some work to do to produce their crops and they are going to need to buy equipment - probably from Deere- to get the job done.