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⚠ High Rates Help the Lender and Hurt the BorrowerLow threat

Deere & Company (DE) — threat to the moat

Deere's bank earns more when rates are high and its farmers buy less; in fiscal 2026 the spread is winning.

Interest rates reach Deere twice. The 10-K warns that "High interest rates can dampen overall economic activity and/or the financial condition of our customers"1. At the same time the finance arm earns a spread over its funding costs, and its interest expense was $2,923 million in fiscal 20252.

Deere consolidated interest expense by quarter ($M)794Q3 FY2025710Q3 FY2026Deere Form 10-Q Q3 FY2026, income statement
Funding costs eased with a smaller book.

The quarterly numbers show both effects. Consolidated interest expense fell to $710 million in the third quarter of fiscal 2026 from $794 million3, as the book shrank and funding costs eased. Financial services net income rose 7% to $219 million, which Deere put down to favorable financing spreads partly offset by a lower average portfolio4. Meanwhile Deere blamed high interest rates, alongside elevated production costs, for pressure on South American farm profitability5.

The result is that Deere's earnings are less exposed to rates than a pure equipment maker's would be: when rates rise, the bank partly offsets the factory. But the offset is incomplete, because the bank's book shrinks when the factory sells less.

The bank's funding cushion has narrowed. Unused credit lines were $5,201 million at 2 August 2026, against $7,268 million at the fiscal year end and $6,150 million a year earlier6. In the first nine months consolidated interest expense was $2,141 million, against $2,408 million a year earlier7.

The balance is visible in the bank's earnings. Net income below $700 million in a year of falling rates would show the shrinking book costing more than the wider spread earned.

References
  1. ReportedThe 10-K warns that "High interest rates can dampen overall economic activity and/or the financial condition of our customers".
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - Item 1A risk factors and legal proceedings: the farm cycle, interest rates, tariffs, technology adoption, competition and the right-to-repair litigation. — FY2025 · publ. 18 December 2025 · source ↗
  2. ReportedAt the same time the finance arm earns a spread over its funding costs, and its interest expense was $2,923 million in fiscal 2025.
    Deere & Company Form 10-K for fiscal 2025 (year ended 2 November 2025), $ millions - selected financial data, MD&A and the supplemental consolidating data for equipment operations and financial services. — FY2025 · publ. 18 December 2025 · source ↗
  3. ReportedConsolidated interest expense fell to $710 million in the third quarter of fiscal 2026 from $794 million, as the book shrank and funding costs eased.
    Deere & Company Form 10-Q for the quarter ended 2 August 2026, $ millions - income statement, balance sheet, receivables, financing receivables, cash returned and the outlook. — Q3 FY2026 · publ. 27 August 2026 · source ↗
  4. ReportedFinancial services net income rose 7% to $219 million, which Deere put down to favorable financing spreads partly offset by a lower average portfolio.
    Deere & Company third-quarter fiscal 2026 results release, Form 8-K exhibit 99.1 - net income, segment results, the industry and segment outlook for fiscal 2026 and net income guidance of $4.75-5.00 billion. — Q3 FY2026 · publ. 20 August 2026 · source ↗
  5. ReportedMeanwhile Deere blamed high interest rates, alongside elevated production costs, for pressure on South American farm profitability.
    Deere & Company Form 10-Q for the quarter ended 2 August 2026, $ millions - income statement, balance sheet, receivables, financing receivables, cash returned and the outlook. — Q3 FY2026 · publ. 27 August 2026 · source ↗
  6. ReportedUnused credit lines were $5,201 million at 2 August 2026, against $7,268 million at the fiscal year end and $6,150 million a year earlier.
    Deere & Company Form 10-Q for the quarter ended 2 August 2026, $ millions - balance sheet and key metrics: receivables, inventories, dealer incentives, financing receivables and the Banco John Deere exposure. — Q3 FY2026 · publ. 27 August 2026 · source ↗
  7. ReportedIn the first nine months consolidated interest expense was $2,141 million, against $2,408 million a year earlier.
    Deere & Company Form 10-Q for the quarter ended 2 August 2026, $ millions - income statement, balance sheet, receivables, financing receivables, cash returned and the outlook. — Q3 FY2026 · publ. 27 August 2026 · source ↗
Sources
Generated October 5, 2026