Deere's Harvest

That recovery will be driven by Deere's farm-equipment unit, which still comprises 90% of its sales. Even here, Deere's gotten tough, canceling franchise contracts with smaller dealers — who, like the farmers, are deeply brand-loyal — encouraging them to partner with higher-volume dealership chains. "Our customers now have to drive more than an hour to get parts," says Roy Dufault, whose family-run franchise in Fosston, Minn., closed in October after 80 years of selling John Deere products. "At harvest time, if a tractor breaks down, an hour means a lot of money lost."

In reality, Deere is following its customers. For decades, smaller U.S. farms have been replaced by industrial, or factory, operations. It's not the storybook farm, but it's more efficient. "The amount of money a dealer has to invest to train its technicians or buy diagnostic tools continues to grow," says Deere CEO Samuel Allen, a company lifer. "So to be a great dealer requires making more money and that's gotten harder for smaller operations." (See pictures of farm land in Nebraska.)

Another factor in Deere's shrinking U.S. presence is that its biggest opportunities will be overseas: 60% of its current business is in North America, 40% in the rest of the world. Allen knows that ratio will change drastically. "Emerging markets hold the most potential," Buckingham Research Group analyst Joel Tiss says. "It makes no sense to open a new dealership in Dubuque, Iowa, anymore when they could put it in Santiago, Chile, where they can do 10 times the volume." Sales in South America are expected to rise as much as 15% in 2010.

Likewise, Russia and Eastern Europe offer potential. Russia has arable land and an aging Soviet fleet of farm equipment, and the government has put a priority on being self-sufficient in food and agriculture. The recession has made financing hard to come by in the region, but "Deere is planting the seeds for when the markets normalize," says Lawrence De Maria, an analyst at the New York brokerage firm Sterne Agee. Still, De Maria adds, "it's sticking with assembly factories for now so that if they had to pick up and leave, it wouldn't kill the shareholders."

Asia is a tougher row to hoe. The company opened a factory in Pune, India, in 2001 and has several operations and joint ventures in China. But the Indian tractor maker Mahindra & Mahindra has also begun selling its wares — less sophisticated but cheaper — in the U.S. "If Deere is making the Lexus or Mercedes of farm equipment, Mahindra is making Hyundai quality," Tiss says.

There are other challenges too. Deere has had to pump billions of dollars into engine technology to meet changing U.S. emission standards coming in 2011 and again in 2014 — costs it will pass on to customers through higher prices. "The 2011 product will go up several thousand dollars in price," Longbow Research analyst Eli Lustgarten says. "So when prices go up again just three years later, even the most price-inelastic customers will feel it."

Questions also persist about whether Deere should remain in the low-margin lawn-mower business and whether it should shed its construction unit. Allen downplays such concerns. "All of our divisions must meet a sustainable level of business," he says. "We're happy where construction is now."

Farmers today are even happier, since they now ride the most sophisticated stuff ever made. "Onboard GPS, leather seats, CD players — farmers fall in love when they walk into a Deere showroom," Rentschler says. "It's hard to resist buying the green."

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