John Deere has had a good final quarter for 2022, boasting an increase in net sales of 40% over the same period last year.

This brings the total revenue for 2022 to $52.6 billion, a 19% improvement over 2021 and it is something which they eagerly confess to be excited about.

Profits up for year

Yet we are constantly reminded that sales volumes are down, so there is obviously an inflation in price that is fuelling this increase.

How much of that increase is due to extra material costs and how much to – what might politely be termed – realising the opportunities presented by a favourable supply and demand situation, is not too difficult to discern.

In 2021 the operating margin for the whole corporation was 16.7%, and for 2022 that had risen to 23.4%.

This seven-percentage-points rise in profitability came about mostly in the latter half of the year, after the disruption of the strike and following the peak of the component shortage crisis.

Still struggling with supply

There are still problems within the supply chain, but the board reported that the situation is gradually improving and the number of partially completed tractors at the factories had been greatly reduced from the summer onwards.

Looking forward, there remains a great air of optimism within the top management echelons of the company, as there always is when talking to investors.

John Deere combine order book
Combine harvesters are effectively sold out for next year according to John Deere

However, the figures do look promising, although it must be remembered that at this level it is a global view rather than specific to any one region.

Order books are reported to be full for the the next three quarters. Not only are they brimming but when opened for a new quarter they fill up fast, in as little as two months as opposed to the more normal normal six months.

Empty yards

Dealer inventories are also low; the ratio of dealer stock to pre-sold machines coming off the line is 10-12%, depending on tractor type. This would usually stand at 25%, so it represents pent-up demand for stock tractors that is unlikely to be addressed until 2024.

It is also noted by the company that the replacement rate in the US is down and the average age of the fleet is up, both of which also point to continued demand.

One final note from the fourth quarter results is that with the continuing high level of commodity prices, helped by a 40% fall in Black Sea exports, farmers have money to invest and are tending to pay more in cash and depend less on finance, which will bolster their future profitability.

Overall, John Deere is reporting a gradual shift back towards normality with the continuing prospect of demand outstripping supply for at least the next two years.