Deere & Company's Q2 2024 earnings call transcript presented a mix of optimism and caution. The company acknowledged a softening agricultural landscape but emphasized its structural improvements and strategic inventory management. Analysts honed in on expected decrementals, used equipment inventories, and pricing pressures. However, hidden within the transcript is a potentially significant development for Deere, a potential key to navigating not only the current cycle but also securing a future less dependent on fluctuating commodity markets: their partnership with Starlink.

Buried amidst talk of tractor inventories and Brazilian soybean yields, Deere casually mentioned that their Starlink connectivity solution was oversubscribed on the first day of the recent Agrishow in Brazil (Deere Q2 2024 Earnings Call Transcript). This detail might be a sign of something much bigger brewing.

While analysts focused on immediate concerns, the Starlink revelation hints at a more robust, potentially recession-proof future for Deere. It suggests a future where Deere's revenue isn't solely tied to equipment sales but to the number of "engaged acres" – land actively using Deere's technology ecosystem.

Deere is already deeply involved in technology integration. Their precision agriculture solutions, like See & Spray and ExactEmerge, have been transforming farming for years. However, connectivity has always been a hurdle, especially in regions like Brazil with its vast and remote farmland.

This is where SpaceX's Starlink comes in, a satellite internet constellation promising global coverage, even in the most isolated areas. By partnering with Starlink, Deere is removing the connectivity barrier, unlocking a massive untapped market for their precision agriculture solutions.

Deere's Engaged Acres Target

The chart below illustrates Deere's progress towards their goal of 500 million engaged acres by 2026. Data taken from Deere Q2 2024 Earnings Call Transcript

Deere's ambition is to reach 500 million engaged acres by 2026. As of Q2 2024, they have 415 million engaged acres globally (Deere Q2 2024 Earnings Call Transcript). This leaves them needing to add approximately 85 million engaged acres over the next two years. Brazil, a crucial growth market, is currently experiencing faster growth in engaged acres than North America.

With 70% of Brazil's farmland lacking connectivity (Deere Q1 2024 Earnings Call Transcript), Starlink could allow Deere to tap into a market representing over 230 million acres in Brazil alone. Even a fraction of those acres becoming "engaged" is a significant step towards their goals.

Further strengthening this strategy, Deere is shifting towards a Solutions-as-a-Service (SaaS) model, and the Starlink partnership fits perfectly. Offering connectivity as a subscription creates a recurring revenue stream, reducing dependence on cyclical equipment sales.

The instant oversubscription of Starlink in Brazil is a clear sign of the demand for connectivity and precision agriculture solutions. This demand isn't driven solely by commodity prices; it's a deep-seated need for higher productivity, efficiency, and sustainability—all essential even in a recession.

"Infographic: The Potential of Starlink for Deere in Brazil"

70% of Brazil's agricultural land is unconnected, representing over 230 million acres. (Source: Deere Q1 2024 Earnings Call Transcript)

Starlink provides a solution to bridge this connectivity gap.

Increased connectivity enables wider adoption of Deere's precision agriculture solutions.

Potential for millions of new "engaged acres" driving recurring revenue through SaaS.

Deere's Starlink partnership is a long-term play, a strategy for a more resilient and consistent business. While the immediate impact might not be evident in 2024 earnings, the long-term potential is substantial. Deere is not just opening new markets; they are building the groundwork for future advancements in automation and autonomy, further strengthening their position as a leader in the agricultural technology revolution.

"Fun Fact"

Deere's iconic green and yellow color scheme was chosen because the original founder, John Deere, believed green represented growth and prosperity, while yellow symbolized joy and harvest. This timeless combination has become a symbol of agricultural innovation and reliability worldwide.