CHELSEA, Ala. (DTN -- Reducing its workforce by perhaps more than 2,000 employees in the past several months, Deere & Company is responding both to economics and to a vision for what it is becoming -- a manufacturer of machinery still, but one that foresees higher value in technology.

These past months have been difficult for Deere and its employees. Many hundreds have been laid off from its production lines beginning late last year. Wednesday, July 24, a new round of layoffs was announced affecting an unknown number of Deere's salaried cadre.

Deere issued a statement Wednesday addressing its reduction-in-force activities. "As the largest global manufacturer of agricultural equipment, John Deere, like many others in our industry, faces significant economic challenges, rising operational and manufacturing costs, and reduced customer demand, including a 20% decline in sales from 2023 to 2024."

It is true that Deere's agricultural customer base is hard hit. USDA forecasts farm sector income will be $116.1 billion this year, down almost $70 billion from an income record set in 2022. Those are numbers reflected in Deere's performance. Deere is projecting net sales in its production and precision ag segment to be down 20% to 25% for fiscal year 2024 with declines projected across nearly all its markets -- U.S., Canada, Europe and South America.

"As Deere looks at this right now, they are seeing two things. One is based upon what they are seeing in their economic condition," said Chad Hart, ag economist, Iowa State University. Deere is currently seeing declining business across every one of its markets -- ag, construction, forestry and residential. It must react to this, a down market cycle; painful for all when they occur, but not all that rare.

"The other is," Hart said, "as they look at their business is 'how do we want to reshape ourselves to take better advantage of future opportunities.' I think that's why we are seeing these deeper cuts into the salaried positions, [in effect] resculpting Deere corporate to remold [themselves] to take better advantage when things improve," Hart says. "You could see them moving more of their basic construction to international facilities, keeping more of the higher tech production here within the U.S."

Deere is finding strategic opportunities to move the production lines of some components. For example, it was in August 2022 when Deere announced it was moving cab production from Waterloo, Iowa, to its Ramos Component Works in Mexico. That is a move scheduled to be completed this year. Just last month, Deere announced it is purchasing land at Ramos to build a plant that will produce mid-frame skid steer loaders and compact track loaders. That is new manufacturing capacity moving to Ramos from Deere's Dubuque (Iowa) Works.

Hart believes Deere will remain a large U.S. employer, but the company is increasingly a technology company -- albeit technology mounted onto heavy pieces of steel. Deere would seem likely to want to reshape its employee talent base to fit its vision of the future.

Deere sees its "Solutions as a Service" as the very heart of its future. It is a business strategy of licensing software and of technology subscriptions from which Deere hopes to earn 10% of its revenue by 2030.

"Deere has been selling basic equipment with a lot of technology. Deere sees more growth potential [in technology] than with just the hardware," Hart said.

It's a heavy lift for a traditional hardware manufacturer. For Deere, it's not only a need for producing intelligent software. But with that is the requirement to build supporting platforms for e-commerce, licensing and customer success (the experience customers have with the products and platforms).

Hart believes the success of Solutions as a Service and recurring income remains a question for Deere. "It is still an unknown whether that will pay off or not. But when you look at how consumers utilize products and services, we are becoming more used to paying for services [within] a subscription-based system. Deere is utilizing that. But it is a change within agriculture. Where ag is used for paying for a piece of equipment and doing some maintenance on their own, that is presenting some unique challenges to where Deere wants to take its business."

For example, will Deere develop for-fee technology/software training modules for farm managers? "Does [Deere] offer training modules, classes for farmers who want to do [software updates and installations]? Then, it's not just subscription-based, paying Deere to maintain the software? But in order to learn the software you're going to have to learn it from Deere," Hart said. "That is, is there a way of still maintaining control, yet offering folks the ability to do some of their own work? Who is better to learn it from than the folks who built the system?

Dan Miller can be reached at dan.miller@dtn.com

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