Tony Huegel - Director of Investor Relations Raj Kalathur - Chief Financial Officer J. B. Penn - Senior Advisor, Office of the Chairman Josh Jepsen - Manager, Investor Communications.

Jamie Cook - Credit Suisse Jerry Revich - Goldman Sachs Timothy Thein - Citi Group Joe O'Dea - Vertical Research Partners Ann Duignan - J. P.

Morgan Steven Fischer - UBS Securities Michael Shlisky - Seaport Global Securities Adam Uhlman - Cleveland Research Andrew Casey - Wells Fargo Securities Seth Weber - RBC Capital Markets Joel Tiss - BMO Capital Markets Sameer Rathod - Macquarie Capital Ross Gilardi - Bank of America Merrill Lynch.

Good morning. And welcome to Deere & Company Third Quarter Earnings Conference Call. Your lines have been placed on listen-only until the question-and-answer session of today's conference. I would now like to turn the call over to Mr. Tony Huegel, Director of Investor Relations. Thank you. You may begin..

Thank you. Also on the call today are, Raj Kalathur, our Chief Financial Officer, Dr. J. B. Penn, our Senior Advisor to office of the Chairman and Josh Jepsen, Manager, Investor Communications. Today, we'll take a closer look at Deere's third quarter earnings, then spend some time talking about our markets and our current outlook for fiscal 2017.

After that, we'll respond to your questions. Please note that slides are available to complement the call this morning. They can be accessed on our Web site at www.johndeere.com/earnings. First, a reminder. This call is being broadcast live on the Internet and recorded for future transmission and use by Deere & Company.

Any other use, recording or transmission of any portion of this copyrighted broadcast without the express written consent of Deere is strictly prohibited. Participants in the call, including the Q&A session, agree that their likeness and remarks in all media may be stored and used as part of the earnings call.

This call includes forward-looking comments concerning the Company's plans and projections for the future that are subject to important risks and uncertainties.

Additional information concerning factors that could cause actual results to differ materially is contained in the Company's most recent Form 8-K and periodic reports filed with the Securities and Exchange Commission.

This call also may include financial measures that are not in conformance with accounting principles generally accepted in the United States of America, or GAAP.

Additional information concerning these measures, including reconciliations to comparable GAAP measures, is included in the release and posted on our Web site at www.johndeere.com/earnings under Other Financial Information.

Josh?.

Earlier today, John Deere reported another quarter of strong performance, as the Company continue to benefit from improving marketing conditions throughout the world. We're seeing higher overall demand for our products with farm machinery sales in South America experiencing strong gains and construction equipment sales rising sharply.

The Company's performance is also being helped by an advanced product portfolio and the continuing impact of applicable cost structure and lien asset base.

Now, let's take a closer look at our third quarter results, beginning on slide three; net sales and revenues were up 16% to $7.8 billion; net income attributable to Deere & Company was $642 million; EPS was $1.97 in the quarter.

On slide four, total worldwide Equipment Operations net sales were up 17% to $6.8 billion; price realization in the quarter was favorable by 1 point; currency translation did not have a material impact in the quarter. Turning to a review of our individual businesses, let's start with Ag & Turf on slide five.

Net sales were up 13% in the quarter-over-quarter comparison due to higher shipment volumes and price realization, partially offset by higher warranty cost. All regions contributed to the sales increase. Operating profit was $685 million, up 20% from 571 million last year.

This was a result of higher shipment volumes and price realization, partially offset by increased production costs, higher warranty cost and higher selling, administrative and general expenses.

The quarter also benefited from a gain on the sale of Deere’s remaining interest in SiteOne Landscape Supply, Inc., which contributed just below 2 points of operating margin. For more details regarding the transaction, please see the notes in today's earnings release. Operating margins were 12.8% for the quarter.

In the quarter-over-quarter comparison, the SiteOne impacted minimal as both periods benefitted from SiteOne sale. Before we review the industry sales outlook, I'll now turn the call over to Dr. J. B. Penn for commentary on the global Ag economy. J.

B.?.

Thanks, Josh. Good morning, everyone. I will try to provide a very brief high level view of how we’re sizing up the global agricultural economy at the moment; a few supporting slides are included in the presentation.

Here we are in mid-August experiencing yet another good growing season, following four previous seasons of near ideal weather for global agriculture.

Food demand remains very robust, and with the forecast for another abundant crop, the fundamental outlook basically is for more of the same, a continuation into the future of the current market condition.

Nevertheless, it is highly notable that the global grain supply use balance is tightening somewhat with consumption outpacing production for the first time since 2012, suggesting that the commodity markets could be increasingly sensitive, going forward.

Likewise, protein markets, such as Dairy, are also now more in balance globally with prices and farmer incomes improving from recent seasons.

We now have enough experience following the record high 2012 prices to suggest that recent commodity price trading ranges can now be expected for the future, moving upside with any significant adverse weather events, but with minimal downside risk.

New floors -- new price floors have been established by shift in the own farm cost structure and the market fundamentals. Now, the USDA August world agriculture supply-demand estimates reported last week, clarified the U.S. crop situation considerably.

It reaffirm that overall demand remains very strong, forecasting another increase in global grain consumption for the 22nd consecutive year. While 2017 is not as weather perfect as the previous four years, it still is proving to be quite good worldwide. The [Wazi] report also forecast ample supplies of corn and soybean from large acreages.

Even so, as shown on the chart on slide eight, we see the global supply use ratio for all grains, excluding China, forecast to fall significantly, approaching 15%, which would imply a global 59 day supply versus the lowest ever recorded of 52 days.

Now, when we look at farmer margins in the U.S., we see crop farmers’ build-out positive margins from the marketplace supplemented by the government program benefits. Notably, a turnaround in farm income is forecast for calendar 2017, the first increase since the peak in 2013.

Our experience is suggesting that traditional farmer capital purchase patters are returning; now that used equipment inventories are approaching more traditional levels.

The agricultural credit situation still is relatively good across the sector; loan volume has increased to be sure; we see that in the John Deere financial revolving credit line; but most repayment and creditworthiness indicators and the John Deere financial portfolio loan loss experience, still are well within the normal balance.

Another recent USDA report showed average U.S. farm real estate values rose 2.3% in 2017 after a slight decline in 2016, which was only the second decline in the past three decades.

Overall, crop land value however remains flat, as shown on slide 10, but with a slightly mixed picture across the major farming regions; that is prices declined 16% in the corn-belt but belter prices rose 3%.

Cash rents remains sticky, lagging changes in land prices; crop land cash rent, shown in slide 11, declined in 2016 from 2015 but remained unchanged in 2017; rental rate changes were mix in major agricultural states, slightly down in some but notably higher in others.

The USDA data suggests that with current commodity price ranges, farmers for the most part, are still willing to pay the current rental rates. Now, looking beyond North America. The agricultural economies in Latin America continue to improve again this year with record corn and soybean production and exports forecast for the season.

Despite considerable political turmoil, our agriculture is increasingly robust, especially in Brazil and Argentina, with the rest of Latin American generally improved as well. Brazil is forecast to report the highest farm income in 30 years.

The Black Sea region continues its expansion, experiencing even larger crops and export quantities along with improved farm economics. Grain exports will be record large in both Russia and Ukraine, and Russia now is a contender for number one wheat exporter, displacing both the U.S. and Canada.

Elsewhere in the world, the agricultural economies are mostly stable with few significant events or developments. Marginal improvements continue to be evident in Europe, however.

And now to summarize this overall view, let me note that geopolitical turmoil and political uncertainty continues to be the business backdrop as they have been all through the past year. And this always has the potential to be very disruptive to global food and agriculture market, thus than ever present short-term downside risk.

But overall, the global agricultural economy this year is an improvement over last year and next year is expected to be marginally better yet again. Weather still is the market wild card, the driver of any significant upside price movement.

Global food and agricultural trade still growing despite sluggish GDP growth, but the prospects are better for 2018 and 2019. New IMF forecast boost global GDP growth to 3.6% in '18 and 3.7% in '19 compared with 3.5% forecast for this year; all of these increases boding well for continued strength in income growth and food demand.

And I will end with a reminder that the long term global tailwinds still are with us; food trends in population and urbanization growth, along with continued income growth and dietary improvements, still characterize the global agriculture business backdrop. Now, back to you Josh..

Thanks J. B. Turning to our 2017 Ag & Turf industry outlook on slide 12, which are largely unchanged from last quarter. Industry sales in the U.S. and Canada are forecasted to be down about 5% with the effect felt in both large and small models of equipment. There has been a lot of conversations regarding the trend in the retail sales in U.S.

and Canada for tractors of 100 horsepower and above. It's important to note that in the third quarter, over 80% of Deere sales in this category were below 220 horsepower. As noted previously, it does appear the large ag market is stabilizing.

Signs supporting the stabilization include; a considerably lower rate of industry sales decline in 2017 versus the past two years; a used equipment environment that is supportive of sales; and, increased demand for spring seasonal products.

This is particularly true for what we’re seeing in planters and sprayers in the first phase of our early order program for 2018 with orders up strongly. EU28 industry outlook is flat to down 5% in 2017. Sentiment is improving in the region due to higher dairy and solid livestock margins.

Dairy and livestock make up about half of farm incomes in the EU28. However, low crop prices and edible farm incomes continue to weigh on the market. In South America, industry sales of tractors and combines are projected to be up about 20% in 2017. In Brazil, the transition to the FINAME plan for 2017-2018 has gone smoothly.

The government is ongoing committed agriculture, coupled with strong margins are continuing to improve farmer confidence. Sentiment and demand Argentina remains strong as well. Shifting to Asia, sales are expected to be flat to down slightly. Turning to another product category. Industry retail sales of turf and utility equipment in the U.S.

and Canada are projected to be about flat in 2017. Putting this all together, on slide 13, fiscal year 2017 Deere sales of worldwide Ag & Turf equipment are now forecast to be up about 9% versus 2016 with currency translation contributing about 1 point.

The year-over-year increase is driven by growth in our overseas markets, and is also benefiting from lower beginning filed inventories. Our Ag & Turf division operating margin is forecast to be 11.58% in 2017. The implied incremental margin for the year is about 40%.

Excluding the impact of onetime items, like SiteOne and the voluntary employee separation program, incremental margins are roughly 30%. Now, let's focus on Construction & Forestry on slide 14. Net sales were up 29% in the quarter, mainly a result of higher shipment volumes, partially offset by higher sales incentive expenses.

Operating profit was $110 million in the quarter, up from $54 million last year. The increase was driven by higher shipment volumes, partially offset by higher selling, administrative and general expenses, higher sales incentive expense and increased production costs.

Operating margins were 7.4%, nearly 3 points higher than in last year’s third quarter. Moving to slide 15.

The economic fundamentals affecting the construction and forestry industries in North America are cause for continued optimism; GDP growth is positive; job growth continues; construction spending is up from 2016 levels; housing starts are expected to exceed 1.25 million units this year; and home inventories are near 35 year lows; construction investment is forecast to grow in 2017 by about 3%, led by rebounding oil and gas and residential activities; commercial and institutional construction continued to increase moderately; machinery rental utilization rates have improved in each of the last six months, and rental rates are beginning to gain positive traction; and, used inventories has continued to come down in the past quarter.

All in all, our outlook reflect the strong order book, as well as what we've seen in the way of retail sales growth over the last six months. Moving to our C&F outlook on slide 16. Deere's Construction & Forestry sales are now forecast to be up about 15% in 2017, largely driven by demand in the U.S. and Canada.

The forecast for global forestry markets is down about 5% to 10%, a result of lower sales in U.S. and Canada. C&F's full year operating margin is now projected to be about 6.6% with an implied incremental margin of about 27%. Let's move now to our Financial Services operations.

Slide 17 shows the provision for credit losses as a percent of the average owned portfolio. The financial forecast for 2017, shown on the slide, contemplates a loss provision of about 27 basis points, slightly lower than the previous forecast.

This will put the losses just above the 10-year average of 26 basis points but below the 15-year average of 34 points. Moving to slide 18, worldwide Financial Services’ net income attributable to Deere & Company was $131 million in the third quarter versus $126 million last year.

The improvement was primarily due to lower operating lease losses, partially offset by a higher provision for credit losses and higher selling, administrative and general expense. Financial Services’ 2017 net income attributable to Deere & Company is forecast to be about $475 million, unchanged from the previous forecast.

Slide 19 outlines receivables and inventories. For the Company, as a whole, receivables and inventories ended the quarter, up $867 million due to increases in both the Ag & Turf and C&F division. We expect to end 2017 with total receivables and inventories up about $950 million with increases in both of our equipment divisions.

Regarding the increase in Ag & Turf, the majority comes from inventories. Increases related to receivables are driven by our overseas markets as North American receivables are down year-over-year. Currency translation had a significant impact in the overall change for the quarter and in the full year forecast.

Slide 20 shows cost of sales as a percent of net sales. Cost of sales for the third quarter was 77.1%. Our 2017 cost of sales guidance remains about 77% of net sales.

When modeling 2017, keep in mind the unfavorable impacts of raw material prices, the emissions cost, incentive compensation, voluntary separation expenses and pension and overhead expense.

On the favorable side, we expect price realization of about 1 point, but slightly favorable sales mix and savings related to the voluntary employee separation program. Now, let's look at some additional details. With respect to R&D on slide 21, R&D was down 1% in the third quarter and is forecast to be down about 1% for the full year.

Moving to slide 22, SA&G expense for the Equipment Operations was up 12% in the third quarter with the main drivers being incentive compensation, commissions paid to dealers and acquisition related activities. Our 2017 forecast calls for SA&G expense to be up about 11%.

Most of the full year change is expected to come from incentive compensation, voluntary separation expenses, commissions paid to dealers, acquisition related activities and currency exchange. Acquisition related activities are in large part related to our planned acquisition of the Wirtgen Group, which was announced earlier in the quarter.

Turning to slide 23, the Equipment Operations tax rate was 27% in the quarter due mainly to discreet items. For 2017, the full year effective tax rate is now forecast in the range of 30% to 32%. Slide 22 shows our Equipment Operations history of strong cash flow. Cash flow from the Equipment Operations is forecast to be about $2.9 billion in 2017.

The Company's financial outlook is on slide 25. Net sales for the fourth quarter are forecast to be up about 24% compared with 2016. Our full year outlook now calls for net sales to be up about 10%, which includes about 1 point of price realization and currency translation impact of about 1 point.

Finally, our full year 2017 net income forecast is about $2.075 billion. In closing, we’re well on our way to complete another good year. The Company's ability to deliver consistently strong financials, as we've done throughout 2017, is proof of our success building the more durable business model.

In addition, we are continuing to find ways to make our operations more efficient and profitable, while providing even more value to our growing global customer base.

As a result, we’re confident Deere is well positioned to continue its strong performance and longer term, to fully capitalize on the world’s increasing need for advanced machinery and services well into the future..

Thank you, Josh. We're now ready to begin the Q&A portion of the call. Raj, J. B. and I, are available for your questions. In consideration of others, though, and our hope to allow more of you to participate in the call, please limit yourself to one question. If you have additional questions, we ask that you rejoin the queue.

The operator will now instruct you on the following procedure..

Thank you. We will now begin the question-and-answer session of today’s conference [Operator Instructions]. Our first question is coming from Jamie Cook of Credit Suisse. Your line is now open..

I guess my first question or I guess I am only allowed one question. In the ag margins, the incremental margins, if you adjust for SiteOne, disappointed in the quarter. So I’ll someone else ask about the quarter.

But I guess longer term, why shouldn't we have less confidence in your ability to deliver above average incremental margins in ag, or as we're looking out, or the material costs or warranty or price. I mean, should that improve longer term? And are we on track with $500 million savings, because that would also impact the margins.

So just longer term your ability to deliver incremental margins in ag. Thanks..

I think certainly, especially if you look into quarter.

But if you look at the full year I mean you have, as Josh mentioned in the opening comments from an incremental perspective; if you strip out those one-time items, like SiteOne from a positive side, voluntary separation, those sorts of things; you’re still on the neighborhood of 30% and that was incremental for ag, and that's not with a real strong mix from a large ag perspective; there's some positive mix for our ag on the year, but most of that's coming from slight positive with parts, not so much from the completed side of things.

But you're also -- as we talked about throughout the year, we’ve seen pretty significant headwinds on material costs; the higher rates than we would have anticipated certainly going into the year and what we have had anticipated around the 500 million savings; so those headwinds -- we'll see what happens with steel costs and other commodity costs if you go into 2018.

Currently, our forecast would imply flattish, not the improvement we had hoped for. Last quarter, we were anticipating we receive some softening. As we go into 2018, most of the outlook today that we're looking at would stay more flattish to at least the lion share of 2018; but not headwinds year-over-year like we saw this year from an increase.

The other thing you mentioned, warranty. And I think we did talk about that in the quarter. And I think it's worth spending maybe a little bit of time, because if you look at the underlying ongoing rate of warranty claims that actually starting to come down a bit.

And then talking specifically in ag, because that's the area that we’ve talked about this quarter. But what's occurred in the quarter is -- and you're I think aware of it, Jamie; occasionally, we’ll choose to proactively fix certain product issues that have been identified in the field; and we refer to those as product improvement programs.

And it really relates to -- we have very strong focus on customer satisfaction and product quality. And so when we identify those things, we want to make sure they got taken care off right away. In those situations, we accrue the costs for those repairs or for that program in the quarter that the program is identified or launched.

And so you tend to get lumpy charges from those product improvement programs, because of an accrual upfront; we've had a few of those in the quarter; if you step back I know one of the concerns maybe around quality. But remember, we have launched a very large number of new products in recent years, primarily related to emission requirements.

And as a result of that with that higher level of new product that has entered the market, we’ve seen a bit of an increase in those product improvements programs; and again, especially in the quarter. And that primarily what drove the higher warranty in the quarter.

I would remind you also that we did increase our parts warranty program in earlier in the year. And so that does have a little bit of increase on the ongoing warranty rate versus what we would have seen a year ago.

But the biggest issue in the quarter really was around those improvement programs, which theoretically won't repeat at least at these levels as we go into 2018..

Jamie, this is Raj. Let me just add to what Tony talked about, and your question about margins, going forward. There is a lot of noise in this quarter and that’s why we say, hey look at the full year. And then beyond that, we’re just at the nascent stage in terms of cycle, especially when you think about large ag North America.

So that’s a mix shift better as to Tony’s point, this can get better. Remember, we are still a very low percent of mid-cycle. So at these levels, these margins when it's structural enough, it's a good bet.

Now $500 million above, you’re on track with the $500 million and we could have been even ahead, but for the material inflation headwind, Tony talked about. So if material inflation is flat, like where it is right now fuel prices that might offer some additional help.

Now, if you remember we said direct material cost reductions of 2.5% per year is what we’ve baked in with, so structural cost reduction. So we are getting that 2.5% structural direct material cost reduction pretty much.

But we also said we’re expecting about 0.5 of that being eaten away by FX and material inflation; this year, it's more than 0.5, even away where material inflation. So, if that changes and as we accumulate even more structural direct material cost reduction, margin should improve even further.

Now one thing I'll add is let's keep in mind that it's going to get harder to pin point the portion of the improvement coming from the structural cost reduction we talked about as things start improving and the cycle goes up. We’ll have some leverage come back at.

So it will be hard to pin point leverage versus structural cost reductions, but we’ll try our best to talk about it..

Our next question is coming from Jerry Revich of Goldman Sachs. Your line is now open..

On used equipment inventories, you mentioned a couple of times that inventories have come down.

Can you just flush that out a little bit more for us, how much are used equipment inventories down over the course of the cycle from the peak? And if you could share months of supply in absolute that would be helpful, and any color on combined versus large tractor as well. Thank you..

Really what I'm looking at in the numbers I pulled for late, specifically the large ag in total. So I don’t have details in front of me in combines and tractor, for example. But I don’t believe they’d be significantly different; combines, remember we’re in better shape, so I guess most of the reduction will be in tractors.

But if you look at large ag in total, we would say at the end of our third quarter, we’re down about 37% from the peak, which would have been in summer of 2014. Last quarter, we were down about 36% and a year ago, at this time, we were down 23%. So if you think about over that last year, we’ve gone from down 23% to down 37%.

So our dealers have done a great job of bringing those used inventories down. We're continuing to focus on that. Putting that in perspective, these are the lowest levels on an absolute basis since September of 2012. So the dealers again have pulled a lot of inventory out of the system, and it really goes part the comment to both Josh and J. B.

made about that being a much more supportive environment for our dealers today as they work with our customers..

And Tony, were those absolute numbers in terms of lowest levels in 2012, or is that a month of supply. Can you just help us understand the difference [multiple speakers]..

That’s on an absolute level..

And how’s it looking months of supply?.

I don’t have that number in front of me. So I’ll have to look that up and get back to you..

And the other thing, Jerry, is you got to think about month of supply on a forward looking basis, it gets even better..

The next question is coming from Timothy Thein of Citi Group. Your line is open. .

The question is on product mix in North America’s Ag, specifically. I'm just curious, Tony, based on what do you see in terms of your early orders, you referenced earlier and as well as the inventory increase that you're projecting in terms of the channel inventory by year end.

What does that tell you at least now as you look ahead to 2018 in terms of the mix, again specifically in North America large versus small.

And may be how that would compare to what you expect to realize here in FY '17?.

Certainly, if you look at large versus small in the U.S. and Canada, a percent of mid-cycle; small ag wouldn’t be as far down, certainly; they’ve performed much better through this down turn and that’s the part of the positive story that we've had. So I think there’s certainly, from that perspective there’s always more upside on large ag.

And when you think about early order programs, that’s mostly visibility in the large ag. We don’t tend to get that kind of visibility on small ag. At this point, we still be relying more on some of the economic modeling and dealer feedback and so on that we’ll be getting.

But on the early order program on those plants and the equipment and as well as sprayers, we're up double-digit. And I don’t' want to go into the specific number simply because the number -- it is off relatively low level, those are product categories that were at the lower end of the range that large ag went to.

But it's been very encouraging actually it's a bit stronger than what we would have anticipated. And so that’s very positive in terms of the potential for large ag to continue the type of recovery that we’ve talked about as early as last quarter. Now, it's always caution around it at this point that was one phase of the program.

But again, it does directionally point to another data point I guess that would point to a stronger year next year for large ag. We’ll see as we move through the quarter and as the combine early order program kicks in, remember that just started earlier this month. So it's very premature to talk about. We’ll give an update on that in fourth quarter.

But again, most of those signs from customer sentiment to the orders that we’re starting to see would still be viewed as positive for 2018, as it relates to large ag..

The next question is coming from Joe O'Dea of Vertical Research Partners. Your line is now open..

On the $500 million structural cost out that you targeted a year ago.

Could you just talk about what current material costs due to that? And then where you think you’ll be by the end of this year, and any color you can give on cadence moving through ’18, how we should think about the split in '18 and '19?.

So I think we have said, we have about $250 million out of that $500 million in this U.S. forecast so far, and that's roughly where we are as well. In spite of the signals that can hit them, we’ve had some material inflation. So if the material inflation wasn’t that high even higher in terms of our overall -- meeting our overall goal of $500 million.

So we are on track, which means we are on track to get to the $500 million by the end of 2018, so anything beyond the $250 million, you’re going to see in the fiscal '18 numbers..

And just to clarify, remember that was $90 million in 2016 and then another $160 million in '17; so cumulatively $250 million towards by the end of this year..

And then I think run rate in that $500 million when you exit '18, so fair to….

Exactly, so you'll see the full benefit in 2019..

If you’re going to be run rating at the end of '18 that you get more than half of it next year of the remainder?.

Fair..

Yes, I think that’s fair, yes..

The next question is coming from Ann Duignan of J. P. Morgan. Your line is now open..

There is little to no downside risk to commodity prices from here. If we -- if Argentina….

Could you start your question over, we missed the very first part of your question. It was almost as if you were on mute.

So could you start over please?.

Yes, sure. As far as J. B., I think in J. B.’s remarks he commented that there was little to no downside risk to commodity prices from here. And I would just like to hear his thoughts on the notion that Argentina is expected to grow, or it take plans, 10% to 15% more corn, preserves likely to plant at least flat if not more beans.

And if they were to get any kind of trending season like they got picks here and then stock used would rise again and in that scenario, commodity prices would see, likely see a downtick. Could you just address that J.

B., and the notion that there is no downside risk?.

First of all, you have to take 10 or 15 year look at the overall situation.

You'll remember before 2006, the trading range for corn, let's say, was something in the $1.75, $2.25 range for most time periods, barring adverse weather; then after 2006, we had ethanol and then we've had lot of other significant changes; 2012 we had the drought and the price records were set.

And then the big question was, where will the normal trading range be when we come back from these abnormalities? Well, while we were in those periods, the owned farm cost structure shifted; I mean, look at land prices and cash rents, for instance.

So we can't move back to $2 corn over the long term, simply because the cost structure is such that it's just not practical. So the expectation is after three or four years now since 2012, we're seeing corn trade in a price range of something like $3.60 to $4 in a quarter, something like that.

So when you look at farmers’ profit margin that's consistent; when you look at cash grants, when you look at fuel and feed costs, the cost structure has adjusted.

So that's why we're at about the -- we're at probably a long term floor price; adverse weather of course will cause the commodity prices to move well above that; and in some seasons, as you suggested, Brazil and Argentina may have bumper crops and we may press the prices a bit; but there will be adjustments.

I mean the market still work; you'll see adjustments as we've seen this year in corn and bean acreage, not only here but all around the world now in the major exporting regions. So we think that the range now is that something like just for example $3.60 to $4.25 say for corn and it'll move around depending on weather scare.

But by enlarge, if you had good weather every year, farmers in North America at least can still make money at that and I think in most of the exporting regions as well. So that's the background for that commentary.

The expectations are that we've had now essentially almost fully five good years of weather; one of these days, there'll be an adverse weather event like we saw in 2012. So that's the background for that, Ann. Thanks for the question..

The next question is coming from Steven Fischer of UBS Securities. Your line is now open..

Just want to try and reconcile the slightly softer than expected Q3 revenues with the production and revenue guidance increases in Q4. Just wondering why you're raising Q4 revenue guidance? I think it was implied to be about 16%, 17% for the fourth quarter, last quarter. Now, it's implying somewhere around 24%.

Is that really just a message about higher production and expected strength into 2018?.

Well not. I think, how I would answer that is if you look at the sales forecast for the year, if you take out FX and keep in mind there's some brownie in there. So it appears in our guidance that FX was 100% of the change, but there was a little bit of volume increase as well in that sales forecast. But effectively it's unchanged.

And so when you think about it from that perspective, while clearly we came in a little short in the third quarter from what we had anticipated, most of those sales simply shifted into the fourth quarter.

So it is not a change in our annual guidance, it's just a difference year-over-year, which is always a danger in getting too focused on any individual quarter I would say the same thing from ours.

And if you can have one quarter where you get certain expenses or positives that make the quarter look much worse or much better than it might otherwise; and so it's always important to put that in perspective to the full year.

And I think from that when you look at it that way, our margins are still very strong year-over-year, especially when you consider some of the headwinds that we phased with just material alone. And so, I think that’s still a very strong story, and one I think that we will continue to point to. Third quarter again specifically we talked about it.

One example, we continue to have headwinds from material. And we had headwinds from warranty, those product improvement programs in the quarter. And while the sales were up considerably, remember we’re still at relatively low production level.

And so as a result of that when you get some of those targets they do tend to be magnified and weigh a little heavier than what they would have a few years ago. And I think that’s part of what transpires in the quarter, in particular..

But you also raised the trade receivables and inventory by $375 million, and I assume that was the restructuring of the increased production expectation.

But maybe that was just a one-time [multiple speaker] third quarter?.

I think that there is certainly, as you look at that receivable and inventory increase, I think absolutely, the message there should be the continued confidence and strength as we go into 2018. But keep in mind, as Josh mentioned in his opening comments.

When you look at Ag & Turf, in particular, most of that was actually inventory increase and Deere inventory, as you start to ramp up those facilities a little bit earlier in the fourth quarter. There is very little receivable increase. In fact, what to the extent there was receivable, our dealer inventory increase, that was entirely outside the U.S.

and Canada for Ag & Turf. And when you look at the U.S. and Canada dealer inventory, it's actually lower year-over-year on our forecast. So the implication that we’re pushing a bunch of sales out this year and effectively pulling them out of 2018 and into 2017, would absolutely not the correct at least if it relates to U.S. and Canada market..

The next question is coming from Michael Shlisky of Seaport Global Securities. Your line is now open..

I just wanted to go back over your macro indicator slide for construction. I did notice that the outlook for government construction turned a bit negative here in this quarter. I was concerned that run rates at Wirtgen have softened a bit and we’ve ramped down our growth rate a bit for what you outlined to us back in June..

Well, keep in mind that the U.S. and Canada. And so as you think about Wirtgen, it was roughly a quarter of their sales are in the Americas; so not just U.S. and Canada, but all of the Americas, the bulk of their sales actually are coming from Europe and Asia; Europe is the biggest market and then Asia would also be another 25% or so.

So again, I would not imply that at all in terms of what the opportunity might be for Wirtgen as we go forward..

The next question is coming from Adam Uhlman of Cleveland Research Company. Your line is now open..

I wondering if we could start with Brazil and the order trend that you’ve seen since the government provided additional upside financing.

Have you seen demand pick up? And then where do you see the market trending over the next six months? It seems like there is some cross currents with sugar and soybean pricing and currency like the potential headwinds.

Could you may be flush that out for us?.

I think as you think about Brazil, certainly and J. B. I know has been there recently, maybe go chime in as well. But demand continues to be very strong there. There is always a little bit of noise when you go through a transition from one harvest program to the next, and there was a little bit this time around.

Although, as Josh mentioned in his opening comments, it was actually one of the more smooth transitions is what we've heard from our group there. So certainly, and again, we continue to view that market very favorably to the point of the strong income, those farmer customers continue to get experience.

That tends to be a pretty positive view as we look out even into 2018.

Remember, this is a market we have customers that have remained really pretty profitable even through the downturn and as that stabilization in the broader economy and political uncertainty began to firm up that when that market really took off and we would continue to believe this is really some of the early stages of a true recovery in that market..

I would only just add that, as Tony noted, we were there recently. We spend a lot of time with dealers and customers, and there is a very strong positive sentiment among them. Despite all of the politically theater, they’re still very optimistic about the agricultural prospects and the foreign market outlook about the currency.

So all-in-all, as Tony said, the outlook is still very positive for Brazil..

The next question is coming from Andrew Casey with Wells Fargo Securities. Your line is open..

Question is on Ag & Turf margin.

The guidance for this year implies approximately 11% contribution margin in Q4; despite the revenue growth acceleration, that’s a little lower than I get when I just Q3 for the SiteOne that occurred in both periods that comes out to about 15%, which is a little surprising; given up guessing, you're going to see lower warrant headwinds in Q4; and then potentially, more cost savings benefit; so couple of questions.

First, why do you expect the step down in Q4 versus Q3 when it compare to the prior year? And then second, looking out to 2018; is it reasonable to think that Deere can get to about 30% incremental margins all-in or should we think about that performance ex-ing out whatever items and take into account, what looks like a little bit of a headwind?.

Certainly, if you think about fourth quarter, remember again, I’ll reiterate. While you're still seeing year-over-year higher sales, it's still a lower production month and you still have some pretty significant factories that have shutdowns during that fourth quarter and that would, maybe not to the extent year-over-year.

But you're certainly still going to see those shutdowns. Material cost continues to be a headwind as we think about the fourth quarter.

If we look at, if we exclude some of those onetime items, the incrementals do get a little better where we’ll be approaching 20% plus; which is, again for fourth quarter, you cannot have quite as much leverage because of the lower level of production.

Again, as you think about going into 2018, when you think about incremental margins it's very difficult to say because as we've talked about before mix matters pretty significantly in terms of where that sales growth is coming from.

And remember, we do have -- year-over-year we’ll have headwinds in comparisons for things like SiteOne that won't repeat in 2018. But on the flip side, we would expect not as much headwind on material cost, not as much headwind on things like warranty that we’ve talked about earlier.

So we’ll have to talk more about that in fourth quarter in terms of how all those things balance each other out, and what those margins may look like.

But certainly as Raj pointed earlier, if we do start to see that large ag business continue to come back on a broad basis and see increases year-over-year at these lower levels, you should see some pretty attractive incrementals..

The next question is coming from Seth Weber of RBC. Your line is now open..

I wanted to go back to construction for a minute. You guys did 10% of your indicator outlooks, while raising your revenue forecast.

I'm just trying to understand how much of the raised forecast is actually retail demand versus just dealer re-stock? And can you comment on whether construction pricing is positive for the year within the positive 1% for the Company?.

Yes. So when you think about construction, think about -- I'll say flattish price for the year. It is slightly better than what we would have been at a quarter ago. We would have been -- I still would if it's said flattish. But on the negative side, this is flattish on the positive side but not a ton of movement as you think about that.

Again, remember for our order book the orders tend to be more dealer stock and in that particular business versus retail. Although, retail really beginning in that February time frame have been very positive, continue to be very positive. So that dealer optimism that we've heard and saw very early in the year is translating into retail sales.

Now, when you think about that business in the order books, it continues to be very strong. Remember this is a business that tends to be, I'd say, on average 45 days out depending on the product. And most, if not all, of our fourth quarter production is already filled with orders behind that and dealer order, not retail orders.

But that just kind of continues to be evidence that that market continues be very strong year-over-year, and not unlike larger ag, I mean, off of low level, but still seeing some nice uptick and that momentum doesn’t seem to be slowing much. So we're hopeful that will continue well into 2018..

Just to add to Tony’s comment on the order book. Last quarter, we would have set the order book on a year-to-date basis was about 30% to 35% better than the previous year-to-date at that point. That number now, if you take the year-to-date orders for this year it's over 40%, same year-to-date numbers from last year.

So stronger order book is one of the reasons you're seeing some of this additional increases..

Next question is coming from Joel Tiss of BMO. Your line is now open..

Is the incentive comp increase, is that all in your cost of goods, or does that include the higher share count too?.

The incentive comp would be -- it would be split between cost of sales and SA&G, so it would be in both..

And then just….

That split, by the way, is about 60-40. 60% cost to sales, 40% SA&G..

And just because that was a quick question, I see your cash levels grew to $6.5 billion in the quarter.

Can you just comment, maybe Raj, about the potential to borrow up to $1 billion for the Wirtgen deal? Has that been adjusted or what are you thinking about that?.

The cash growing is essentially to get ready for the Wirtgen deal, you said Joel. So we still haven't borrowed what we said as up to $1 billion being euros so that'll happen between now and closing. And we expect to close Wirtgen in first quarter of '18. So you will see cash increase between now and closing..

And so expect when you see our fourth quarter numbers, you should anticipate seeing an even higher level of cash as we bring that cash back to equipment obviously to prepare for that..

Next question is coming from Sameer Rathod of Macquarie Capital. Your line is now open..

The current administration is looking at Section 301 of the Trade Act of 1974 to investigate China trade. And there's been some indication that China can't hold key U.S. imports in response. My question is how likely these things does unfold, and what are the net impact from the U.S. and Brazilian farmers? Thank you..

There is a lot of uncertainty in the general food and agricultural trade arena, as you know. Just this week, the renegotiation of NAFTA is underway; there's rhetoric about an economic war with China; there's 201, 301 cases; all of this creates uncertainty in the food and agricultural area, especially in the U.S.

And part of the reason for the heightened uncertainty is as you suggest, while aluminum or steel or some of these commodities are quite a long distance from the agricultural sector, the likelihood of retaliation is always there. And of course, the agricultural exports from the U.S. are a prime target for that.

So that heightens the uncertainty that if we take trade action in one area of the economy then certainly because the U.S. is very prominent and agricultural exports, that could be an area that is very politically sensitive and one in which the other countries are likely to retaliate. So that’s a danger. It's out there.

We’re monitoring it very closely, all of the trade developments in Washington and elsewhere in the world..

Our next question is coming from Ross Gilardi of Bank of America Securities Merrill Lynch. Your line is now open..

Just wondering, can you provide an update on latest thoughts on Wirtgen and the prospects of any GAAP earnings accretion in 2018? Or should we still be thinking that restructuring charges and balance sheet adjustments and so forth, potentially offset that next year?.

Ross, all we’ll say with respect to Wirtgen is, we’re on track. We’re currently anticipating closing the transaction the first quarter '18. And as of 14th of August, the regulatory approvals are coming in as we have thought. So we have regulatory approvals from nine out of 15 countries.

So two of the major ones, Europe and U.S., we have regulatory approvals for. We still have to get regulatory approvals from Russia and China. But once we close you will expect to hear more from us on this topic. Until then, we still have the same things that we told you when we announce Wirtgen. So we really don’t have an update beyond that..

All right. Thank you. And again, we appreciate all of the participation and questions. As always, we will be available throughout the day for follow-up calls.

Operator?.

And that conclude today's conference. Thank you for your participation, you may now disconnect..