Deere has been on fire in 2026. Baird sees even more returns ahead

The key mechanism is not near-term earnings, but 2027 order visibility: if row-crop margins stay above breakeven, farmers can justify replacing high-ticket iron, and Deere’s mix should migrate toward higher-margin large equipment and precision offerings. That creates operating leverage on a relatively fixed manufacturing base, so the upside is less about unit growth in the next quarter and more about a sustained re-acceleration in dealer orders and backlog conversion. Secondary beneficiaries are Deere Financial and the dealer/parts ecosystem; the more durable the crop-price move, the more aftermarket revenue and credit quality improve.

The risk is that the market is extrapolating crop-price strength too mechanically. A normal weather season, a surprise acreage expansion, or a demand wobble from China could pull corn/soy back below farmer breakevens fast enough to delay purchases, and higher rates would amplify that by making financed equipment more expensive even if commodity prices hold. The important horizon is 1-3 months for futures-driven sentiment and 6-18 months for actual capex; if dealer inventories start rising before order books, the trade loses its edge.

Consensus may be underestimating how long a replacement cycle can run once it starts, but Deere is no longer an undiscovered story after a large year-to-date run. The better expression is to own the cycle inflection, not chase the rerating indiscriminately: either buy on a pullback or use options to express the 2027 thesis while capping downside if crop prices mean-revert. The thesis is falsified if corn falls back materially below breakeven, if USDA balance-sheet data loosens, or if Deere’s next guidance cycle stops translating commodity strength into equipment demand.