Despite middling agricultural commodities prices,

Deere & Co.

(DE) - Get Report

reported a 36% increase in quarterly profits Tuesday, besting analysts' expectations and sparking a 5% gain in the company's stock price.

The Moline, Ill.-based maker of John Deere tractors now says sales volume will grow by 15% for the full year, and volume in the next quarter will be 21% higher than in the comparable quarter last year.

Deere shares gained 1 7/8, or 4%, to 46 13/16 in midafternoon trading. (Deere closed up 1 3/4, or 4%, at 46 11/16.)

For the second quarter ended April 30, Deere reported net income of $204.3 million, or 87 cents a share. In the second quarter 1999, the company reported net income of $150.1 million, or 65 cents a share. Analysts polled by

First Call/Thomson Financial

had predicted earnings of 71 cents a share in the latest quarter.

The earnings growth trebled sales growth of only 12% -- a performance the company attributed to manufacturing efficiencies. Revenues were $3.79 billion, compared with $3.47 billion in the second quarter 1999.

In a prepared statement, Hans W. Becherer, the company's chairman and chief executive officer, said: "Although the farm economy is continuing to feel the impact of low commodity prices, our operations are benefiting from efficiencies associated with higher agricultural-equipment production schedules."

In a report cheering the profit performance, Joanna Shatney, an analyst for

Goldman Sachs

, said that she still expects industry-wide retail sales for the year to at least remain flat and possibly grow as much as 5%. Deere itself now expects North American farm equipment demand to fall as much as 5%, better than its previous estimates for a fall of up to 10%. Shatney expects Deere to revise its estimate again, noting the extraordinary positive earnings surprise for the quarter.

The earnings report comes four days after the

U.S. Department of Agriculture

released estimates for agricultural supply and demand in 2000, received on Wall Street as the harbinger of increased pressure on farm income and machinery expenditures. Assuming normal weather, the USDA expects an 11% gain in ending inventories of corn, a 65% increase in ending inventories of soybeans and an 11% drop in ending inventories of wheat.

The government predicts increased production and falling prices for corn and soybeans and the opposite for wheat.

If commodity prices continue to languish, the USDA's prediction could "cause earnings at the major manufacturers to fall short of the 'aggressive' consensus expectations that are already in place for 2000," David Bleustein, a

PaineWebber

analyst, wrote.

Agricultural sales comprise around 44% of Deere's sales, but the company also makes machines for construction, forestry and public works, as well as consumer products like riding mowers.