Deere & Company (DE -0.65%) has long been a leader in equipment that farmers across the globe use to produce the food that feeds the world. At home in the U.S., Deere commands 53% of the tractor market and 60% of the combine market, but the international market is more competitive.
Carmakers have autonomous cars to put on the road, but accounting for chaotic traffic creates significant barriers to their actual use. Fortunately for Deere, corn fields have no traffic, and its autonomous tractors and farm equipment are ready to plant, spray, and harvest as early as this fall. Its autonomous tractors, backed by its globally recognized green and yellow branding, could easily vault the company ahead in the global market over the next 10 years.
Leading the next leg in farm equipment
Deere's premier autonomous tractor will be rolled out as a GPS-guided version of its R8 model. The tractor includes 12 cameras, which will enable 360-degree obstacle detection. The cameras and GPS run in tandem with a geofence that operates the tractor within an inch of accuracy.
Its driverless technology goes beyond just tractors, though. The company enhanced its sprayer technology through its 2017 acquisition of Blue River Technology. Blue River discovered that traditional continuous sprayers apply about two-thirds of herbicide to something other than weeds. To solve this money-wasting practice, the company developed a software and camera platform to identify weeds and spray only the areas where weeds exist. Deere has installed the tech in its self-propelled crop sprayers equipped with a 120-foot spray boom where the camera system is mounted.
Image source: Getty Images.
Deere is also investing in software that makes its autonomous fleet more productive and increases crop yields. Its software can also be used to retrofit traditional tractors into driverless versions. Perhaps the most significant advantage of Deere's software ambitions is that software typically has an 85% gross margin compared to around 25% for equipment. Deere projects that software subscriptions will make up 10% of its revenue by the end of the decade.
The company hopes to connect 1.5 million machines and half a billion acres to its John Deere Center by 2026. The center will collect and store crop data to help farmers run their operations more efficiently and cost-effectively.
Conquering the international market
Deere is not alone in its autonomous farm equipment endeavors. Farm equipment makers CNH Industrial and AGCO are also working to bring their versions to market. AGCO said it will begin marketing them sometime in the next five years, and CNH, which makes Case IH-branded farm equipment, doesn't have a timeline for its autonomous fleet.
Deere, on the other hand, expects to begin selling its autonomous tractors this fall and plans to sell autonomous models of its entire equipment line by 2030.
Since AGCO and CNH are two of the most prominent players in the international market, Deere can reap the rewards of being one of the first large-scale companies to introduce driverless technology.
The farming industry is competitive, and big farming companies seeking to gain an efficiency advantage in their commodity businesses may have few choices, including Deere, to facilitate the move for a few years. When AGCO and CNH come to market, they'll have to compete with an already trusted brand.
Where will Deere be in 10 years?
The global population is expected to grow from 8 billion to around 10 billion by 2050. So farmers across the globe will be tasked with providing food for all those people with less land. Over the next 10 years, farmers may have no choice but to be as efficient as possible with their capital and land. It might not surprise readers that the market for autonomous tractors is forecast to grow by nearly 21% annually through 2030.
Farmers will be forced to do more with less over the next decade, and Deere is one of the first branded movers in autonomous tractors and farming equipment. Those two things should give the company a significant leg up on other companies, giving the stock a great chance to outperform over the next decade and possibly beyond.
