JPMorgan Says Sell Deere Ahead Of Potential Liquidity Crunch For Farmers

NEW YORK (TheStreet) -- JPMorgan downgraded agricultural equipment maker Deere  (DE) to Underweight, the firm's sell equivalent rating, saying that the farm sector is "in dire straits" and may face a liquidity crunch heading into 2016.

WHAT'S NEW: After meeting with various participants in the farm sector, JPMorgan analyst Ann Duignan wrote that farmers could face a liquidity crunch heading into 2016. Farmers have been holding last year's corn crop in the hope that prices rebound, but as they plant their new corn in "near-perfect" conditions, the probability of the next season adding to already high stocks is weighing on prices, according to the analyst. Additionally, there are too many used, high horsepower Deere tractors in inventory and the high inventory levels are likely to weigh on Deere's new tractor sales for the foreseeable future, warned Duignan, who dropped her price target on the shares to $84 from $90.

WHAT'S NOTABLE: The U.S. Department of Agriculture's initial World Agricultural Supply and Demand Estimates report for the 2015-2016 season, released earlier this week, implies that U.S. row crop cash receipts will decrease about 7% year-over-year, Wells Fargo reported in a note to investors previously. The data continues to indicate a supply glut, which should restrain crop prices, barring an unforeseen weather event, according to the firm, which kept its Market Perform rating on Deere and Underperform rating on AGCO  (AGCO).

PRICE ACTION: In early trading, Deere fell 3% to $89.40. Other farm machinery makers also declined, with AGCO losing 1.7% to $51, and Caterpillar declining 1% to $87.85.

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