John Deere faces a crossroads amid decreasing demand, increasing investments

John Deere is facing a crossroads as the company continues to see weaker demand in the agricultural sector even while it has committed to investing millions in U.S. manufacturing and promised a brighter road ahead.

The agricultural machinery company warned on its fiscal third-quarter earnings call last week that it is seeing much softer demand, posting significant year-over-year decreases in net income and sales.

The company is working to position itself in the larger agricultural sector, which has seen growing challenges with rising costs, climate change impacts, labor shortages and more.

Farmers have also been dealing with lower prices on crops like corn and grain and have pared back their spending as a result. In turn, Deere’s target audience has pulled back on its willingness to buy new agricultural equipment.

Deere has also been hit by tariff costs, estimating that it could take a $600 million hit for the fiscal 2025 year. The company has already seen $300 million in tariff expenses year to date.

Just after reporting its earnings, the company confirmed to CNBC that it announced 238 layoffs across its Illinois and Iowa factories, adding to thousands who have been laid off over the past year. The company cited decreased demand and lower order volumes as the main factors behind the job reductions.

“As stated on our most recent earnings call, the struggling ag economy continues to impact orders for John Deere equipment,” Deere told CNBC in a statement. “This is a challenging time for many farmers, growers and producers, and directly impacts our business in the near term.”

The manufacturer employs more than 70,000 people globally.

Still, Deere has identified enough green shoots to point to a less-troubling future.

On its most recent earnings call, company executives emphasized the growth in demand in both Europe and South America after seeing weakness in North America. Despite macroeconomic headwinds, Deere’s president of its worldwide agriculture and turf division said the company remains confident in its future.

“We think there’s positive tail winds from both what we see in the trade deals, and we think there are positive tail winds from what we see in tax policy,” Cory Reed said on the call.

And in June, the company released a statement that “myth busted” any claims that Deere might need to shut down its U.S. manufacturing due to the fall in demand. Instead, the company said it was making a “bold move” to invest $20 billion into U.S. manufacturing over the next 10 years.

It follows a similar string of announcements from companies trying to shore up their “Made in the USA” bona fides since President Donald Trump took office. Before the election, Trump threatened Deere with 200% tariffs if it moved production to factories in Mexico.

“Over the next decade, we will continue to make significant investments in our core U.S. market,” CEO John May said in the statement in June. “This underscores our dedication to innovation and growth while staying cost-competitive in a global market.”

Despite the struggles in the broader agricultural sector, Wall Street analysts on the whole remain optimistic about Deere’s road ahead.

Oppenheimer analyst Kristen Owen wrote last week that she remains bullish on Deere and expects increased confidence into 2026, telling CNBC that she believes the company is taking an “appropriately cautiously optimistic outlook.”

Even Truist analyst Jamie Cook, who lowered his target after Deere’s earnings last week and emphasized an uncertain outlook for 2026, said he still believes this year marks a bottoming for the company’s earnings per share.

The company’s stock has seen a nearly 30% increase over the one-year period.

Looking at Deere’s history and the hit that the farming industry has taken over the past few years, D.A. Davidson analyst Michael Shlisky told CNBC he can’t imagine the company going much lower from here.

“The way I’d say it is 2025 could be the worst, the lowest number of tractor sales in the history of modern agriculture,” he said, with the potential for the trend to swing upward becoming imminent.

While the optimism might not be directly translating to sales today, Shlisky said the “hints” of progress are enough to make him excited about the company’s future, including the growth in Europe and South America.

“When parts of the world are doing better, the parts that aren’t doing as well are likely to follow,” Shlisky said.

While not commenting directly on the latest round of layoffs, Shlisky said he doesn’t think investors would be surprised to see the necessary cost-cutting measures at this point in the company’s trajectory.

Similarly, Morgan Stanley analysts wrote in a note that while demand may be decreasing, they stand behind a thesis that Deere earnings have bottomed and that the company remains an “attractive opportunity longer term.”

Analyst Angel Castillo told CNBC that Deere and the agricultural sector at large are cyclical, so while the short-term remains uncertain, the long-term outlook for the company is likely to bounce back, noting that precision agriculture in particular is likely to take off.

“This is one of the unique areas where we think even if there’s more challenges next year, as we kind of expect, the earnings downside risk is much more de-risked or already captured by expectation,” Castillo said.

With its latest cost-cutting measures, Deere is saving itself by not overproducing or creating a supply chain issue, Castillo added.

“The reality today is that we’re still in an uncertain environment, and I think they’re managing in a disciplined, rational way to try to make sure not to create a worse environment,” he said.