Last week we wrote about the U.S Department of Agriculture's latest biannual report of farm incomes which painted a very bleak picture for the American farmer. In its first forecast for 2017, the USDA saw real farm cash receipts down 14% versus 2015 and 36% from the previous high set in 2012 as farm debt continued to soar and leverage surged to all-time highs.

Below is a summary of some of the key takeaways: 

Real farm incomes in 2017 are expected to sink below 2010 levels which represents a 36% decline from the recent peak and a 14% decline since 2015.

Meanwhile farm debt continues to rise at an astonishing rate...

While farmer leverage has spiked to the highest level since at least 1960.

And of course, lower incomes means less money to spend on shiny new John Deere tractors with equipment capex expected to decline 35% compared to 2015.

And finally, farmer returns have crashed to the lowest levels ever. We're not sure about you but a 2.1% ROIC seems a "little low" even in our current rigged interest rate environment. 

In summary, farmers are making no money but are managing to barely stay afloat by adding a massive amount of debt and slashing capital expenditures.

Moreover, the summary above was seemingly confirmed recently when ISI released their latest data on North American sales volumes for tractors and combines.Not surprisingly, January volumes were down anywhere from 20% to nearly 50% YoY, as they were for most of 2015 and 2016. 

Which leads us to our final point, which is, what exactly are John Deere investors seeing that we're not? 

While we certainly understand the concept of investing in cyclical stocks at the bottom of their earnings cycle, we're somewhat less familiar with the strategy of completely pricing in a recovery multiple years in advance while continuing to buy those same cyclical stocks at all-time highs and peak multiples.

That said, we're sure those multiples have room to get even "peak-ier" tomorrow when John Deere reports earnings...we can't wait to see efficient markets at work.