North America Equity Research

04 May 2009

The Ethanol Industry

CARB Ruling Increases Risks for Ethanol Industry

On April 23, California’s Air Resources Board (CARB) adopted regulation that will U.S. Machinery
implement Governor Schwarzenegger’s low carbon fuel standard (LCFS) starting in AC
Ann Duignan
2011. This standard is intended to reduce CO2 emissions from the state’s
(1-212) 622-0381
transportation fuels by 10% by 2020, and establishes a declining threshold of carbon ann.duignan@jpmorgan.com
intensity. In our view, this could potentially have a devastating impact on the ethanol
Philip Shen
industry. What is unusual about the regulation is that it requires biofuels—and only
(1-212) 622-1345
biofuels—to meet declining carbon intensity standards while also meeting an “indirect philip.shen@jpmorgan.com
land use change,” or ILUC, to determine the carbon intensity of ethanol’s potential
J.P. Morgan Securities Inc.
indirect effects, such as deforestation. Not surprisingly, using this analysis, corn-based
ethanol from the Midwest is more carbon intensive than gasoline, and, consequently,
would not meet California’s low carbon fuel standard.
• The CARB ruling increases the risks to the ethanol industry: (1) corn-based
ethanol producers may have limited access to the California ethanol market; (2)
other states may adopt the ILUC methodology; and (3) the ruling may influence the
EPA and its rulemaking on RFS2.
• 35 million acres of land for corn-based mandate will have to come from
somewhere. The ultimate mandate for corn-based ethanol in the U.S. is 15BGY,
which, at current corn yields and a conversion ratio of 2.7 gallons of ethanol from
one bushel of corn, suggests that about 35 million acres of land will need to be
shifted from food/feed production to fuel production. The ILUC argument is that the
loss of these acres will drive crop prices up and eventually lead to crop expansion in
areas of the world where forest or grassland can be converted to cropland, which
ultimately increases GHG.
• It sounds logical, but it is hard to measure. The ethanol industry is up in arms over
the proposal by CARB to include ILUC in its LCFS as it is hard to actually measure
the real GHG impact from “indirect” land use. As a result, CARB has committed to
further study the issue and has pledged to look at the indirect effects of all other
fuels, not just ethanol. Additionally, the ethanol industry believes that CARB is not
giving baseline ethanol sufficient credit for its GHG reduction as it is using a 30%
direct greenhouse gas benefit compared with gasoline, whereas recent studies show
that “modern ethanol plants decrease greenhouse gas emissions by 59% in
comparison with gasoline.”
• The EPA must also publish its interpretation of GHG for RFS2. While RFS2
took effect January 1st this year, the EPA has yet to publish its definition of the new
rule included in RFS2, which requires that new ethanol and biodiesel capacity meet
GHG requirements. Corn-based ethanol must reduce GHG by 20% vs. gasoline and
biodiesel by 50%. If the EPA chooses to include ILUC in its calculation, then no
new capacity is likely to be built, and the mandate likely will not be met.
• Impact on ag machinery. The uncertainty of the ethanol industry and its use of corn
contribute to deteriorating sentiment in the farm sector. As a result, we remain
cautious on DE, AGCO, and CNH.

See page 9 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

The CARB Ruling

On April 23, California’s Air Resources Board (CARB) adopted regulation that will
implement Governor Schwarzenegger’s low carbon fuel standard (LCFS) starting in
2011. This standard is intended to reduce CO2 emissions from the state’s
transportation fuels by 10% by 2020, and establishes a declining threshold of carbon
intensity. In our view, this could potentially have a devastating impact on the ethanol
industry.

What is unusual about the regulation is that it requires biofuels—and only biofuels—
to meet declining carbon intensity standards, while also meeting an indirect land use
change, or ILUC, to determine the carbon intensity of ethanol’s potential indirect
effects, such as deforestation. The idea is that as more land is used for ethanol in the
U.S., less is available for food, and lands elsewhere must be deforested or used to
secure food sources for the local population. Not surprisingly, using this analysis,
corn-based ethanol from the Midwest is more carbon intensive than gasoline, and,
consequently, would not meet the California’s low carbon fuel standard.

Figure 1: Low Carbon Fuel Standard to Reduce Carbon Intensity by 10% by 2020
Low Carbon Fuel Standard (LCFS)
Compliance Schedule

98 0%

96
-2%
Grams Of CO2 Emitted Per Megajoule

Percentage Reduction From Baseline

94

92 -4%

90
-6%
88

86 -8%

84
-10%
82

80 -12%
Gasoline

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020
Average

Carbon Intensity Of Gasoline And Fuels Substituting For Gasoline % Reduction

Source: CARB and J.P. Morgan.

Carbon Intensity of Corn-Based Ethanol vs. Gasoline

Ethanol is less carbon intensive versus gasoline, when excluding indirect land
use changes. Not including emissions created by indirect land use changes, ethanol
produced in an average Midwest corn-based facility is, according to CARB, 28% less
carbon intensive when compared to the average gasoline in California. However,
when including emissions generated by indirect land use changes, ethanol produced
in the average Midwest corn-based facility becomes 4% more carbon intensive when
compared to the average gasoline in California, according to CARB. The carbon

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

intensity of a fuel pathway is measured by the number of grams of carbon dioxide

released for every mega joule of energy produced (gCO2e/MJ).

What are indirect land use changes (ILUC)? Indirect land use changes describe
the utilization or displacement of land as a result of acreage expansion due to corn-
based ethanol. The idea is that as more land is used for ethanol, less is available for
food. This leads potentially to deforestation and expansion of farmland elsewhere as
local populations attempt to secure food sources. In pursing ILUC, CARB is
attempting to account for the carbon intensity of corn-based ethanol’s indirect
effects.

When comparing direct emissions, corn-based ethanol is 28% less carbon

intensive vs. gasoline. In the recent ruling, CARB considered 11 corn-based ethanol
fuel pathways. The pathways account for the variety of facilities and vary by: (1) dry
mill vs. wet mill; (2) location; (3) natural gas vs. biomass power generation; and (4)
dry vs. wet distiller grains. According to CARB’s analysis, the average ethanol
facility in the Midwest emits 28% less carbon dioxide vis-à-vis gasoline. In the
exhibit below, we also include the Brazilian ethanol pathway that uses sugarcane as
the feedstock. Brazilian ethanol, on average, emits 71% less carbon vs. gasoline in
California.

Figure 2: Avg. Midwest Ethanol Is 28% Less Carbon Intensive vs. Gasoline Excluding ILUC
CARB Carbon Intensity Values For Ethanol From Corn And Sugarcane
Without Indirect Land Use Changes (ILUC)
120
Avg Midwest Corn-Based
Ethanol Emits 28% Fewer
100 96 gCO2/MJ Versus California Avg Brazilian Sugarcane
Grams Of CO2 Emitted Per Megajoule

Gasoline Excluding ILUC Ethanol Emits 71% Fewer

gCO2/MJ Versus California
Gasoline Excluding ILUC
80 75
69 68
66 64
60 59
60 57 54
51
47

40
27

20

0
CA Midwest (MW) CA CA Avg MW MW MW CA MW MW CA CA Brazilian
Gasoline Avg Dry Mill; Wet (80% MW; Dry Mill and Wet Mill Dry Mill & Wet Dry Mill & Dry Mill & Dry Mill & Wet Dry Mill & Dry Mill & Wet Sugarcane
DGS; NG 20% CA) DGS DGS DGS; NG DGS (80% DGS (80% DGS (80% DGS (80%
NG; 20% NG; 20% Bio) NG; 20% NG; 20% Bio)
Biomass) Biomass)

Source: CARB and J.P. Morgan.

However, including ILUC, corn-based ethanol—according to CARB—is 4%

more carbon intensive than gasoline. CARB’s analysis that includes indirect land
use changes suggests that corn-based ethanol is more damaging to the environment
than gasoline. CARB determined that, on average, corn-based ethanol contributes 30
grams of CO2 per mega joule via indirect land use changes. If this ruling stands as is,
then many Midwest ethanol production facilities could potentially lose California as
a market for their ethanol, without additional investments. We estimate that roughly

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

75% of Midwest facilities may not meet the LCFS requirements. (See our analysis in
the Risks of the CARB Ruling section.)

Figure 3: Including ILUC, Corn-Based Ethanol Is 4% More Carbon Intensive Than Gasoline
CARB Carbon Intensity Values For Ethanol From Corn And Sugarcane
With Indirect Land Use Changes (ILUC)
120

96 99
Grams Of CO2 Emitted Per Megajoule 100

80

60

40 Including ILUC, Avg Midwest

Corn-Based Ethanol Emits 4%
More gCO2/MJ Versus
20 California Gasoline

0
CA Midwest (MW) CA CA Avg MW MW MW CA MW MW CA CA Brazilian
Gasoline Avg Dry Mill; Wet (80% MW; Dry Mill and Wet Mill Dry Mill & Wet Dry Mill & Dry Mill & Dry Mill & Wet Dry Mill & Dry Mill & Wet Sugarcane
DGS; NG 20% CA) DGS DGS DGS; NG DGS (80% DGS (80% DGS (80% DGS (80%
NG; 20% NG; 20% Bio) NG; 20% NG; 20% Bio)
Biomass) Biomass)

Direct Emissions Indirect Land Use Change Emissions

Source: CARB and J.P. Morgan.

Modern corn-based ethanol facilities are much more efficient than the average.
According to POET, modern corn-based ethanol facilities are much more efficient
than the average facility in the Midwest. These modern production facilities produce
just ~39 grams of CO2 per mega joule (vs. the average corn-based ethanol facility of
69 grams of CO2 per mega joule as assessed by CARB) and, as a result, are less
carbon intensive compared to gasoline by ~59%. Including CARB’s ILUC emissions
estimates, the modern facilities are 28% more efficient than gasoline, and, thereby,
likely meet the low carbon fuel standard.

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

Figure 4: Modern, More Efficient Corn-Based Ethanol Facilities in Midwest Likely Meet LCFS
CARB Carbon Intensity Values
For Ethanol From Corn And Sugarcane
120
Excluding ILUC, Modern Including ILUC, Modern
Efficient Midwest Corn- Efficient Midwest Corn-
96 Based Ethanol Emits 59% Based Ethanol Emits 28%
100

Grams Of CO2 Emitted Per Megajoule

Fewer gCO2/MJ Versus Fewer gCO2/MJ Versus
California Gasoline California Gasoline

80 69

60
39
40

20

0
CA Midwest Midwest Brazilian
Gasoline Modern Facility Modern Facility Sugarcane
Including ILUC

Direct Emissions Indirect Land Use Change Emissions

Source: CARB and J.P. Morgan.

RFA objects to ILUC analysis. Following the CARB announcement on April 23,
the Renewable Fuels Association (RFA) published a letter to respond to the ruling.
The RFA believes that CARB’s efforts to estimate indirect land use change, as a
result of expansion of U.S. ethanol production, require further refinement and
validation. The following are some specific comments by the RFA:

• The model CARB relies upon, known as GTAP, is not a mature model for
estimating land use changes.
• The biofuels “shock” implemented in GTAP is inconsistent with USDA projected
crop yields. That is to say, the CARB ruling did not sufficiently account for
increased crop yields in the U.S. as a result of new technologies.
• Insufficient GTAP feed co-product land use credits result in overestimation of
land use changes.
• Other GHG benefits of co-products were ignored, or “are still being evaluated.”
• Missing land sets in the GTAP database result in extra forest land being
converted.
• The analysis does not consider relative costs of converting different land types,
resulting in overestimation of forest land converted.

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

Risks to Ethanol from the CARB Ruling

In our view, the CARB ruling increases the overall risk profile of the ethanol
industry. We highlight the following key risks: (1) corn-based ethanol producers may
have limited access to the California ethanol market; (2) other states may adopt the
ILUC methodology; and (3) the ruling may influence the EPA and its rulemaking on
RFS2.

Risk #1: Corn-based ethanol producers may have limited access to the
California ethanol market. In 2008, California consumed 15.5 billion gallons of
gasoline—or about 10% of the nation’s total gasoline consumption. Under RFS2, CA
would eventually consume about 1.6 BGY of ethanol (or about 10% of the mandate).
This represents about 5% of total current corn production. In the CARB ruling, the
average Midwest producer had a carbon intensity of 99 gCO2e/MJ, or 4% greater
than California gasoline. Of the 11 ethanol pathways the committee evaluated, seven
appear to meet the LCFS requirements. Notably, four of the seven pathways are
based in California, with the remainder in the Midwest. Thus, unless Midwest
producers make investments to reduce their carbon footprint via co-generation or sell
wet instead of dry DDGS, many facilities may not be able to access the California
market in the years to come.

Ethanol fuel pathways that meet LCFS requirements employ co-generation, sell
wet DDGS, or do both. Of the 11 ethanol fuel pathways, only three from the
Midwest met the LCFS requirements according to the CARB ruling. All were dry
mills. Two pathways generate power via natural gas and biomass, while the other
sells wet distiller grains. As a rough estimate, our sources believe less than 10% of
ethanol plants in the Midwest have invested in the co-firing technology.
Additionally, while our sources estimate that 50% of producers sell wet distiller
grains, not all of their DDGS are sold wet. They believe that 15-20% of total DDGS
are sold wet. Thus, using these rough figures, we optimistically estimate that 25-30%
of the ethanol production in the Midwest could qualify for the LCFS. (We recognize
that our estimate assumes even distribution, no overlap between facilities that co-fire
and sell wet DDGS, and that some facilities will sell a mix of wet and dry DDGS.)
This leaves the remaining producers with the choice of exiting the California market
or investing in co-generation technologies and creating wet DDGS markets.

Risk #2: Other states may adopt ILUC. In our view, an equally large risk is that
additional states adopt the ILUC rules. According to Chad Hart, an agricultural
economics professor at Iowa State University, other states are now considering
CARB’s methodology to account for indirect land use changes. These states include
Massachusetts and Connecticut. If enough states begin to adopt stringent ILUC rules,
then the rules may force existing facilities to make additional capital investments in
technologies to reduce their carbon footprint. This could result in yet another
challenge facing the ethanol industry.

Risk #3: The CARB ruling may influence the EPA when drafting the rules for
the RFS2. In a letter to General Wesley Clark, Co-Chairman of Growth Energy,
Mary Nichols, Chairman of CARB, highlighted that CARB will work with the EPA
to “harmonize where possible the data, modeling, and values used for life-cycle
analysis and land use change.” OPIS reported last week that the EPA is expected to
announce the long-awaited results of its preliminary rulemaking, potentially

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

sometime this week. The RFS2, which became law in December 2007, requires that
new ethanol production facilities be 20% less carbon intensive than gasoline on a full
life cycle basis. The EPA officially completed its analysis for the RFS2 rulemaking
on April 29th according to its website. OPIS sources report that the EPA will likely
include indirect land use change in its analysis, but it is not clear which model(s) it
will use and whether it will apply indirect effects to all fuel pathways. Some sources
are indicating that the EPA ILUC ruling may only apply to changes to domestic
lands—and not international lands—which would be more favorable to the industry.
A key difference between the EPA’s rulemaking and the recent CARB ruling is that
the EPA rules will apply only to new facilities, whereas the CARB ruling applies to
all fuel produced regardless of when the facility was constructed.

Fundamentals Remain Challenging

Economics Remain Tough
Producer margins remain weak. Our analysis suggests that at current ethanol and
corn prices, producer variable margins are about 5%. Corn and natural gas costs
remain low vs. the peaks in 2008, but ethanol prices also remain lower, which are
now ~$1.56/gallon in Chicago. DDGS prices are estimated at $125/ton vs. $180/ton
in Jan’08.

Table 1: Ethanol Producer Margins Remain Weak

Corn Ethanol - Dry Mill - Today Corn Ethanol - Dry Mill - Corn Breakeven Price Corn Ethanol - Dry Mill - Ethanol Breakeven Price
Input: Input: Input:
Corn (1) 1 bushel @ $3.82 $3.82 Corn 1 bushel @ $4.09 $4.09 Corn (1) 1 bushel @ $3.82 $3.82
Natural Gas (1) 0.165 mBtu @ $3.25 $0.54 Natural Gas (1) 0.165 mBtu @ $3.25 $0.54 Natural Gas (1) 0.165 mBtu @ $3.25 $0.54
Variable Production Cost per bushel $4.36 Variable Production Cost per bushel $4.63 Variable Production Cost per bushel $4.36
Ethanol Gallons per bushel 2.8 Ethanol Gallons per bushel 2.8 Ethanol Gallons per bushel 2.8
Variable Production Cost per gallon $1.58 Variable Production Cost per gallon $1.68 Variable Production Cost per gallon $1.58
Transportation (4) $0.29 $0.29 $0.29
Variable Input Cost per Gallon $1.87 Variable Input Cost per Gallon $1.97 Variable Input Cost per Gallon $1.87

Output: Output: Output:

Ethanol (2) 2.75 gallons @ $1.60 $4.40 Ethanol (2) 2.75 gallons @ $1.60 $4.40 Ethanol 2.75 gallons @ $1.50 $4.13
DDGS (lbs) (3) 18 lbs. DDGS (lbs) (3) 18 lbs. DDGS (lbs) (3) 18 lbs.
0.008 tons @ $125.00 $1.02 0.008 tons @ $125.00 $1.02 0.008 tons @ $125.00 $1.02
Revenue per bushel $5.42 Revenue per bushel $5.42 Revenue per bushel $5.15
Ethanol Gallons per bushel 2.8 Ethanol Gallons per bushel 2.8 Ethanol Gallons per bushel 2.8
Revenue per Gallon $1.97 Revenue per Gallon $1.97 Revenue per Gallon $1.87

Gross Margins: 5.0% Gross Margins: 0.0% Gross Margins: 0.0%

Source: Haver Analytics, OPIS, USDA, and J.P. Morgan estimates.

Ethanol prices are down 39% from peak, but remain at a premium to gas. Since
Jul’08, ethanol prices have fallen 39% vs. wholesale gas prices, down 55% from its
peak. Currently, based on an average U.S. rack prices (i.e., the price the blender pays
which is higher than spot prices which is what the producer is paid), ethanol is
trading at a $0.24/gallon premium to gasoline, which is below the blender’s credit of
$0.45/gallon.

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

Figure 5: Ethanol & Wholesale Gas Prices Figure 6: Ethanol Premium Reduces Discretionary Blending
Historical Ethanol And Regular Unleaded Gasoline Spread Between Ethanol And Regular Unleaded Gasoline
Wholesale Prices (U.S. Rack Rates) (U.S. Rack Rates)
$2.00
$4.00
$3.75 $1.50
$3.50
$3.25 $1.00
Blender's credit changed from
$3.00 $0.51 to $0.45 per gal on 1/1/09.
Price ($/Gallon)

$2.75 $0.50

$/Gallon
$2.50
$2.25 $0.00
$2.00
$1.75 ($0.50)
$1.50
$1.25 ($1.00)
$1.00
Dec-04
Feb-05
Apr-05

Aug-05
Oct-05

Oct-06

Oct-07
Jun-05

Dec-05
Feb-06
Apr-06

Aug-06
Jun-06

Dec-06
Feb-07
Apr-07

Aug-07
Jun-07

Dec-07
Feb-08
Apr-08

Aug-08
Oct-08
Jun-08

Dec-08
Feb-09
Apr-09
($1.50)

Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Ethanol Regular Unleaded Gasoline

Source: Bloomberg and J.P. Morgan. Source: Bloomberg and J.P. Morgan.

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

Companies Recommended in This Report (all prices in this report as of market close on 01 May 2009)
AGCO Corp. (AG/$25.51/Neutral), CNH Global (CNH/$17.16/Underweight), Deere & Co. (DE/$42.88/Neutral)
Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures

• Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for
AGCO Corp., Deere & Co. within the past 12 months.
• Director: A senior employee, executive officer or director of JPMorgan Chase & Co. , JPMSI, and/or its affiliates is a director
and/or officer of Deere & Co..
• Client of the Firm: AGCO Corp. is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to
the company investment banking services and non-securities-related services. CNH Global is or was in the past 12 months a client of
JPMSI. Deere & Co. is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company
investment banking services, non-investment banking securities-related service and non-securities-related services.
• Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking
services from AGCO Corp., Deere & Co..
• Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment
banking services in the next three months from AGCO Corp., CNH Global, Deere & Co..
• Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other
than investment banking from Deere & Co.. An affiliate of JPMSI has received compensation in the past 12 months for products or
services other than investment banking from CNH Global, Deere & Co..

AGCO Corp. (AG) Price Chart

Date Rating Share Price Price Target

N $33 ($) ($)
110
12-May-06 N 27.06 -
OW $33 N $25 25-Jan-07 OW 33.65 -
88
02-Jun-08 OW 60.43 70.00
N OW OW $70 OW $53 N $29 15-Oct-08 OW 34.73 53.00
Price($) 66 19-Dec-08 OW 23.60 33.00
09-Jan-09 N 26.44 33.00
44 09-Feb-09 N 25.04 29.00
28-Apr-09 N 24.25 25.00
22

0
May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May
06 06 06 07 07 07 07 08 08 08 08 09 09

Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage May 31, 2008 - Jun 02, 2008. This chart shows J.P. Morgan's continuing coverage of this stock; the
current analyst may or may not have covered it over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

9
Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

CNH Global (CNH) Price Chart

Date Rating Share Price Price Target

115 UW $10 ($) ($)
25-Jan-07 N 32.52 -
92 N $20 02-Jun-08 N 43.66 -
24-Oct-08 N 13.04 --
N N N UW $15 09-Jan-09 N 18.40 20.00
69
Price($) 26-Jan-09 UW 9.22 10.00
24-Apr-09 UW 15.33 15.00
46

23

0
May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May
06 06 06 07 07 07 07 08 08 08 08 09 09

Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage May 31, 2008 - Jun 02, 2008. This chart shows J.P. Morgan's continuing coverage of this stock; the
current analyst may or may not have covered it over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Deere & Co. (DE) Price Chart

162 Date Rating Share Price Price Target

OW $67 N $45 N $45 ($) ($)
25-Jan-07 OW 49.48 -
135
OW $100 OW $53
N $38 02-Jun-08 OW 81.34 105.00
14-Aug-08 OW 67.10 100.00
108
OW OW $105 OW $48N $43
15-Oct-08 OW 41.99 67.00
Price($) 81 28-Nov-08 OW 35.76 48.00
09-Jan-09 OW 45.18 53.00
13-Jan-09 N 41.56 45.00
54
10-Feb-09 N 40.62 43.00
19-Feb-09 N 32.23 38.00
27
24-Apr-09 N 38.83 45.00

0
May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May
06 06 06 07 07 07 07 08 08 08 08 09 09

Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage May 31, 2008 - Jun 02, 2008. This chart shows J.P. Morgan's continuing coverage of this stock; the
current analyst may or may not have covered it over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] The analyst or analyst’s team’s coverage universe is the sector
and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Ann Duignan: AGCO Corp. (AG), Bucyrus International (BUCY), CNH Global (CNH), Caterpillar
Inc. (CAT), Commercial Vehicle Group (CVGI), Cummins Inc (CMI), Deere & Co. (DE), Eaton Corp. (ETN), Illinois Tool
Works (ITW), Joy Global (JOYG), Manitowoc Co. (MTW), Navistar Int'l (NAV), PACCAR Inc. (PCAR), Parker Hannifin
(PH), Terex Corp (TEX)

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2009

Overweight Neutral Underweight
(buy) (hold) (sell)
JPM Global Equity Research Coverage 35% 46% 19%
IB clients* 54% 54% 42%
JPMSI Equity Research Coverage 35% 51% 14%
IB clients* 75% 73% 57%
*Percentage of investment banking clients in each rating category.
For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category.

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Ann Duignan North America Equity Research
(1-212) 622-0381 04 May 2009
ann.duignan@jpmorgan.com

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