And that’s going to help us to deliver more value to customers. and importantly, to more customers and more acres, more quickly. So that’s a focus area. Some of those we’re early in the journey. Others, we feel really good about what we’re executing on. And I think importantly, structurally, we feel like we’re performing from a profitability perspective at a different level. And our expectation is you look at where we’re performing today, with volumes as they shift and move up or down, we would move up or down that line based on where we’re performing. So we think this is a meaningful structural shift in profitability and one that we’re going to keep working on. So, thanks, Jamie.
Jamie Cook: Thank you.
Operator: Our next question is from Tim Thein with Citigroup. Sir, your line is open.
Tim Thein: Hi, great. Thanks. Good morning. Maybe just on ag, coming back to the comments on Brazil, if you can just maybe help us frame that up a bit just in terms of, you mentioned some of the production cuts you made where you’re, I guess, targeting in the second half of the year. How do you think that — obviously, again, a lot of moving parts in a volatile market. But how do you think you’ll end the year from an inventory perspective in Brazil as we go into ’24 and obviously, the dealer inventories? That’s the question. Thank you.
Brent Norwood: Hey, Tim. Good morning. As it relates to Brazil, as we noted in our opening comments, it’s been a really dynamic year. I think a lot of puts and takes. At this point, the order book is full for the rest of ’23. And managing the year has been interesting. We’ve seen record production for corn soy, and near-record production for cotton and sugar, really healthy profitability for customers there, down from 22%. And again, to refer back to our opening comments, probably a little bit less than expected from our customers there as they had lower levels of forward selling this year, and I think some difficulty marketing, the sizable the crop that they had in 2023. You had a little political uncertainty and the delay in the government-sponsored financing program.
And that was all kind of embedded in our reduced industry guide from — we went from flat to down 5%. And that really reflects, for us, lower production in the fourth quarter. But a great example of kind of how we intend to be proactive in managing a dynamic market in almost real time. Brazil has always operated that way. We’ve been — we’re more dynamic in terms of our order book, our pricing strategy and how we manage production there. So, the goal is with some of the modest production cuts that we took in the fourth quarter is that we would end the year there with inventory really at target. And so that we would start the year again in that default position of an intent to produce in line with retail sales for 2024. The good news is there from a combine perspective, in particular, I think we’re over 90% retail sold.
So we should have a pretty good read on where inventory is heading for the end of the year, which should well position us for next year. Longer term though, despite maybe some of the market dynamics of this year, Brazil is still one of our most important growth markets. And it’s going to be a market that we’re going to continue to invest in for the long term, even while we manage production in the short term. Thanks, Tim.
Operator: Our next question is from Steven Fisher with UBS. Your line is now open.
Steven Fisher: Thanks. Good morning. So the year-over-year step down in pricing in Production & Precision Ag from Q2 was a bit bigger than the kind of headwind you had from tougher comparison in the year before. I guess, were you expecting such a big step down in pricing? I mean you didn’t change your pricing forecast, so maybe it’s really not any surprise. But I’m curious if the environment and what you’re seeing in the order activity is still supportive of a 2% to 3% pricing, including incentives? And how is the need for incentives kind of shaping up here?
Brent Norwood: Hi, Steve. As it relates to pricing, I would say that the second quarter came in almost right on the forecast for Production & Precision Ag and Construction & Forestry, Small Ag & Turf probably fared just a shade better as they’re retaining a little more price than we had in the forecast. But all of this is largely in line with our expectations, particularly as we lap some of the mid-year price increases that we took in ’22. We would expect from a percentage basis to see that price realization come in. For Production & Precision Ag, I think we were 12% in the third quarter. That should be high single digits in the fourth quarter as expected. And importantly, though, we’re seeing production cost inflation ratchet down at a similar pace.
So when you look at the absolute delta between price and cost, for Production & Precision Ag, for example, I think we were about $1.4 billion positive in the first half. Second half should be something not dissimilar to that. So, we are maintaining that price cost discipline, I think, throughout the entire year. Now, as it pertains to next year, no change in some of the early pricing that we’ve put out there, which has been in the sort of 2% to 4% range. And we are certainly managing our incentive spend as well embedded in that. So, we would expect overall realization to be within that range inclusive of whatever discounts begin to get layered back into the market for 2024. Thanks.
Steven Fisher: Perfect. Thank you.
