JP Morgan downgrades Deere on drought woes

(Reuters) - J.P. Morgan Securities downgraded Deere & Co to "underweight" from "overweight," saying it expects the world's largest farm equipment maker to be hurt by the drought in the U.S. Midwest and declining farm yield.

Hot and dry weather for the next two weeks is likely to put even more stress on already beleaguered corn and soybean crops in the western and northern U.S. Midwest.

The brokerage expects tractor sales to be weaker from August into next Spring, as farmers deal with low yields.

Farmers have been spending higher for four-five years, implying that they can hold spending for a season, JP Morgan said.

"Many farmers will simply take a "wait and see" attitude to equipment purchases towards year-end and into 2013," JP Morgan analyst Ann Duignan wrote in a note to clients.

The drought in Midwest is now impacting more than 80 percent of the region, the note said. In 2012 the corn yields are expected to be 20 to 30 percent below trend.

The brokerage cut its price target on Deere stock to $78 from $98.

Shares of Moline, Illinois-based Deere were down about 2 percent at $75.19 in premarket trade. They closed at $76.78 on Monday on the New York Stock Exchange.