Deere Holds 2026 Outlook Steady Despite Weak Large Ag Market

Strong construction, small agriculture and precision technology demand help offset ongoing pressure in high-horsepower farm machinery markets

Deere & Company reported second-quarter net income of $1.773 billion, down slightly from $1.804 billion a year ago, while maintaining its full-year fiscal 2026 earnings guidance of $4.5 billion to $5.0 billion, signaling confidence that diversification and continued technology investment can help the company navigate a difficult global farm economy. 

The results highlighted a growing divide inside the farm machinery sector. Deere’s large agriculture business — the category most exposed to row crop profitability and major machinery purchases — remained under pressure, while smaller equipment categories, construction machinery and technology-linked services showed considerably more resilience.

Production and Precision Agriculture sales fell 14% in the quarter to $4.5 billion, while operating profit declined 39% to $706 million. Deere said the decline was driven primarily by lower shipment volumes and higher production costs.

Meanwhile, Deere’s Small Agriculture & Turf division posted a much stronger performance, with sales rising 16% and operating profit climbing 25%. Construction & Forestry results were even stronger, with sales up 29% and operating profit up 48%.

Chairman and CEO John May said the results demonstrate the value of Deere’s broader equipment portfolio amid ongoing volatility in global agricultural markets.

From an industry standpoint, the report reinforces what machinery dealers and analysts have increasingly described as a bifurcated ag equipment cycle. Demand for large tractors and combines remains weak as lower crop prices, tighter farm margins, elevated interest rates and uncertainty surrounding trade policy continue to pressure major capital purchases. Deere itself forecast the U.S. and Canadian large ag market will decline 15% to 20% in fiscal 2026, while South American tractor and combine markets are expected to fall roughly 15%.

The outlook reflects ongoing softness in corn and soybean profitability following several years of historically elevated machinery replacement activity. Dealers across the Midwest have also reported higher used equipment inventories, which continues to weigh on pricing for late-model large machinery.

Meanwhile, Deere’s report suggests producers are still spending selectively in areas tied to operational efficiency, technology adoption and smaller-scale equipment replacement. The company pointed to continued investment in innovation and precision technology as a long-term growth driver.

Industry analysts are likely to focus heavily on Deere’s ability to preserve margins despite lower large ag volumes. Even with operating pressure in Production & Precision Agriculture, Deere maintained a 15.7% operating margin in the segment, a figure that remains historically strong compared to prior downturn cycles.

The results also underscore how increasingly important Deere’s construction and financial services businesses have become in smoothing earnings volatility tied to agriculture. Financial Services net income rose 18% in the quarter due primarily to favorable financing spreads.

Another notable element in the report involved tariffs and trade policy. Deere disclosed it recorded a $272 million recovery tied to refund claims related to tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA) after the Supreme Court invalidated those tariffs earlier this year.

The company also warned that uncertainty surrounding global trade policy, tariffs, geopolitical conflicts, supply chain disruptions and energy prices remain major risks for the machinery sector going forward.

For the broader agricultural economy, Deere’s guidance may be viewed as modestly constructive. While the company continues to project significant weakness in large farm equipment demand, the decision to maintain full-year earnings guidance suggests conditions are not deteriorating further and that the company believes the sector may be stabilizing after a prolonged machinery downturn.

The report also indicates that precision agriculture adoption remains a central long-term theme for machinery manufacturers even during cyclical downturns. Deere specifically cited its “Smart Industrial Operating Model” and continued technology investments as core strategic priorities.

Meanwhile, construction equipment demand continues to provide an important offset to softer farm machinery sales, reflecting ongoing infrastructure spending and resilient non-residential construction activity in North America. Deere now projects U.S. and Canadian construction equipment markets will rise about 5% in fiscal 2026, while global roadbuilding markets are expected to increase roughly 10%.

Overall, Deere’s quarter reinforces the view that the agricultural machinery downturn remains concentrated primarily in large row crop equipment rather than the entire rural economy. Smaller equipment categories, precision technology, aftermarket support and construction machinery continue to provide stabilizing forces for both Deere and the broader equipment sector.