Here and look forward to showing showcasing some of our latest technology later today. We have a full agenda for the morning with about 45 minutes of prepared remarks from our CEO, John May and our CFO, Ryan Campbell. I'd also like to recognize Sam Allen, our Chairman J. B. Penn, our former Chief Economist and Mark Howes, our Chief Administrative Officer, who are here with us today as well.
Following our opening comments, we'll have an additional about 45 minutes for Q and A. For those joining by phone, you're in listen only mode and we will not be able to take questions from remote participants. Following the Q and A session, we'll transition to Las Vegas Convention Center for a tour of the John Deere booth, where you have a special opportunity to interact with our precision ag leadership and participate in a tire side chat with one of our customers. Before we begin, just a reminder that slides are available to complement the webcast this morning. They can be accessed at our website on johndeere.com slash earnings.
As a reminder, this event is being broadcast live on the Internet and recorded for future transmission and use by Deere and Company. Any other use, recording or transmission of any portion of this copyright broadcast without the express written consent of Deere is strictly prohibited. Participants in today's event, including the Q and A session, agree that their likeness and remarks in all media may be stored and used as part of the webcast recording. In the Q and A session, we will not answer any questions about JDCC or Deere's Financial Services segment because JDCC is in the process of issuing medium term notes. Today's commentary and discussion may include forward looking comments concerning the company's plans and projections for the future that are subject to important risks and uncertainties.
Additional information concerning factors that could cause actual results to differ materially is contained in the company's most recent 10 ks and periodic reports filed with the Securities and Exchange Commission. This event may include discussion of financial measures that are not in conformance with accounting principles generally accepted in the United States of America or GAAP. Additional information concerning these measures, including the reconciliations to comparable GAAP measures is included in the company's most recent 10 ks and posted on our website at johndeere.com/earnings under Quarterly Earnings and Events. With that, I'd like to turn it over to our CEO, John May.
Well, good morning, everybody, and welcome to 2020 CES. I have prepared some comments that I want to first share with you and then I really look forward to the opportunity to have a Q and A with all of you where we can go a little deeper into all of these topics. So if you'll bear with me, I'd like to share some of these comments first. We're very excited to highlight the progress in advancing precision ag and showcase some of the innovations we're working on for the future. Since we're at CES, I'll focus my comments on precision ag.
However, I will also use this time to highlight some of the broader initiatives we have underway, while Ryan will walk through our long term financial aspirations. Before I get started, please allow me to provide a brief introduction of myself since I haven't had the privilege to meet with all of you. I became the company's CEO in November after most recently serving as our company's COO. I have served John Deere for over 22 years, mostly in operations capacities, while in both our equipment divisions as well as international experience as a country manager in China. Just prior to my role as COO, I was a President of our Ag Division with primary oversight for our precision ag and crop care businesses.
During that time, I launched the Intelligent Solutions Group, which develops our precision technologies and I completed a number of acquisitions, including Blue River Technology, which you'll get a chance to see today. In becoming Deere's CEO, I truly believe I have the best job in the world. Not only am I privileged to work with an extremely talented team, some of whom you're going to get the chance to meet today, but also I'm inspired to serve the company at any time when we have enormous opportunities to deliver sustainable outcomes for all of our stakeholders. As CEO, I have 2 immediate priorities for John Deere. 1st, it's focusing on capital allocation, both investments in R and D to the areas of greatest potential differentiation and profitability, resulting in intensified precision ag investments, higher penetration in our aftermarket and retrofit businesses and an increased emphasis on high performing product lines, while actively addressing any lower performing product lines.
Secondly, we are reorienting our cost structure, including both our organizational design and footprint to create a more agile company and best capitalize on the immense opportunities in front of us. Immediate focus on these two priorities will allow us to deliver long term financial, operational and sustainable returns for all stakeholders. Financially, this focus will produce higher margins across the cycle, less variation in performance across our business with a continued commitment to the expected financial performance under our OROASVA model. Operationally, this will focus this focus will produce improved performance for lower performing product lines, execution at our factories with material cost reductions and faster responsiveness to changing market conditions. In terms of sustainability, this focus will strengthen our unique position to develop technologies that enable our customers to improve global food security by producing more food with fewer inputs.
Secondly, achieve both greater environmental stewardship of the land and profitability through data driven decision making. 1st, let's spend some time delivering delving deeper into capital allocation. So when I refer to capital allocation, I mean the allocation of the resources to our growth and operations. Please note that our overall use of cash priorities are unchanged. We remain committed to maintaining a mid single A rating, funding operational and growth needs of the enterprise, maintaining our dividend policy, continuation of our stock buyback philosophy.
As it pertains to funding our growth, we'll focus on 2 areas. 1st, we'll fund our large agricultural equipment portfolios, which serve as the platform upon which we create comprehensive crop production system solutions. And second, we'll increase our investments in next generation precision agriculture to accelerate autonomy, intelligence and plant level management. Because we believe wholeheartedly in the value that precision agriculture will create for John Deere and our stakeholders, we must accelerate our allocation of capital to this area. Today, we are shifting to a production system strategy, ensuring that capital allocations and the innovations they help develop focus on the entire system of producing a crop, leveraging the entire suite of John Deere products.
With this view, we can continue to While our production systems approach reveals the need for increased investment in advanced technology, it also confirms the need for continued investment in our core large ag equipment. Simply put, our comprehensive equipment portfolio across each step in the production system represents the essential platform upon which we will deliver our next generation technologies. Advanced algorithms and sophisticated guidance lines are the most efficient when combined with equipment that can execute in the field. In addition, we will continue investing in the technologies that enable the next generation of precision agriculture. John Deere's strategy has always been unique among our peers.
In that, we own and develop our own enabling technologies, including guidance, telematics, digital solutions and electrification. A perfect example of this is our latest ADAR tractor, which you'll see later today, recently revealed at Agri Tecnica, it is the most technologically advanced tractor we have ever produced. The tractor comes equipped with much of our available precision technologies. Arguably, the most important innovation on the new ADR is the EIVT, an electromechanical transmission capable of generating 10 times more power than a bolt on generator. This industry first innovation provides electrification of a full range of farm implements from axle drives to planting row units.
We view electrification as an essential element to the next gen automation and autonomy and this AgriTeknica Gold Medal winning product and CES award winning innovation is a great example of Deere's pioneering investment in the foundational tools necessary for precision agriculture. With the right portfolio of large agricultural equipment coupled with integrated foundational technologies, we are uniquely positioned to lead the innovation to the next generation of precision agriculture. We have identified a 3 pronged approach for the next generation of precision ag. The first phase is automation to autonomy. The second is insights to intelligence.
And the third is anywhere management. Let me review each of these in more detail starting with automation to autonomy. We want our customers to be the most profitable and sustainable growers by using technologies to make farming more automated across every production step. Before we can achieve fully autonomous vehicles, first, we must automate every task the operator performs in the equipment's cab. In farming today, the primary field sensors are still the farmer's eyes.
And the decision making capabilities are based on the farmer's own experience, the years of experience the farmer has farming. Movement or actuation or optimizing of that equipment happens by hand as the farmer makes onboard adjustments to optimize for infield conditions. We are changing this dynamic by empowering farmers to automate their tasks. Through sensors and computer vision, our machines can detect both agronomic and machine conditions simultaneously. And through advanced algorithms, we can then process millions of sensor measurements and images to make the optimal decision.
Lastly, our machines can automatically execute without any farmer intervention. We've spent the last 20 years investing in the essential building blocks of automation with technologies like guidance, telematics, data management and electrification. We are now stacking next generation automation technologies on top of our foundational tools to bring to the market innovations such as ExactEmerge planners, ExactApply sprayers and Combine Advisor, all of which are gaining significant adoption across our markets. These are just a few these features are just the beginning of this automation to autonomy journey and many exciting developments lie ahead. All of the previously mentioned technologies utilize preloaded prescriptions or are reactive to infield conditions.
The next phase of automation will be proactive and forward looking. Predictive feed rate control, which won a silver medal at Agri Tecnica is a great example of the forward perception technology being generated into our equipment. Utilizing computer vision, this technology senses the crop condition and density in front of the combine, then decides the optimal speed for the combine. This application is just the tip of the iceberg and will aggressively integrate proactive and forward looking technologies across our product portfolio and production systems. As another example, we'll soon be able to plan the optimal path of our equipment before entering a field.
As a result, increasing efficiency and fuel economy. Turning to insights to intelligence. Data is becoming the most critical element in increasing economic value on the farm. We believe access to better data will empower farmers to make more profitable and more sustainable decisions. Our flagship digital tool is the John Deere Operations Center, which helps customers leverage data to create the richest source of farming intelligence.
At 165,000,000 engaged acres globally, the John Deere Operations Center is the largest data platform in the industry and the only platform of scale among traditional ag equipment manufacturers. This backbone of this ecosystem is connectivity between Deere equipment and our cloud. All of our large agricultural machines have been equipped with telematic capabilities since 2012. And over 85% of global machines with telematics are connected and engaged with our ecosystem. This connectivity not only helps us support our equipment, but it also allows farmers to utilize our digital analysis tools, facilitating better agronomic decisions in the field.
We intentionally designed John Deere Operations Center to be an open digital platform, which today connects over 150 software companies integrated into our platform through APIs. John Deere does not intend to build every possible digital tool for a farmer or need to manage their data as well. And while the John Deere Operations Center provides many native applications and analysis tools, we've empowered farmers with the ability to leverage our platform to share their data with others that provide solutions such as agronomic recommendations and financial recordkeeping services. In this way, we are focused on improving outcomes for our customers, whether utilizing a John Deere tool or a third party solution. Additionally, our platform also allows for 3rd party advisors to write agronomic prescriptions that can be pushed back to the cloud and then wirelessly transmitted to our machines to seamlessly execute the jobs in the field.
Regarding the value of this data to John Deere, it's all about enabling us to create smarter machines and empowering farmers to make better decisions by creating a virtuous cycle within the farming production system where each step informs the next step. So the outcome of a tillage job will inform the machine on how best to plan. And the guidance lines that were used for the planner will guide the sprayer and so on and so on. The immense importance of data underscores our concentrated efforts of digital adoption. The platform creates the most customer value when done at scale.
And today, we are proud to be the largest and most trusted platform among farmers. In this way, machine and agronomic data is the fuel to our precision strategy well into the future. John Deere Operations Center allows farmers to do 3 steps. It allows them to plan, to monitor and to analyze their entire operations with what we call anywhere management. Step 1, the planning phase.
There are many decisions that farmers must make before getting into the field, such as the type of crop, the type of seeds, what guidance lines they need to set. Our tools allow farmers to do that work with maximized speed, quality and efficiency. Step 2 is the monitor phase of farming operations. John Deere Operations Center allows customers to monitor multiple pieces of equipment operating at the same time keeping their finger on the pulse of their fleet and team in a real time location from any location. Analyze.
Step 3, customers gather data from which to learn and make decisions versus intuition or trial and error. Trial and error only allows a farmer 40 chances in a lifetime to optimize their operations. Our tools allow farmers to learn from what works or didn't work in the past and in a faster, more robust manner. Today, the analyzed functionality exists on a wide spectrum of capabilities from basic level do it yourself data exploration to insight generation all the way to intelligent recommendations. Ultimately, we seek to build off of our foundational technologies and next generation automation advancement to achieve plant level management.
At this level, we can at scale optimize the micro environment around each plant. Success requires expertise in the competencies of machine learning, computer vision and robotics, underscoring the importance of our acquisition of Blue River Technology. For its history, farming has largely relied on assessments by the human eye. Today, we have the ability through computer vision to see into a spectrum not visible to the human eye. At the same time, we can process resulting data faster than a human brain can compute.
For example, equipment mounted cameras can now see all the way to a plant's chlorophyll, while advanced algorithms process the information within milliseconds to make a decision, execute a prescription and then machine learning facilitates continuous improvement. There are potential solutions available across the entire production system. We're starting with the largest herbicide applications, See and Spray. See and Spray will be the 1st commercialized product utilizing Blue River's technology. An initial version of See and Spray will be available in the market in 2021.
See and Spray uses computer vision and advanced algorithms to distinguish between crops and weeds then selectively spray weeds only. Today, the spraying operation can be one of the most inefficient on the farm. As machines broadcast spray across the entire field, the technology can result in a 90 percent reduction of herbicides. Blue River has also enhanced our ability to attract and retain some of the best talent in the tech industry. We now have technology centers in San Francisco and Sunnyvale, California, with every employee attracted to the opportunity to solve difficult problems, while driving increased sustainability in ag.
We have doubled the Blue River staff with hires from top tech firms and universities. This exceptional team base, which you're going to have a chance to meet several of them as you're in the booth, would have been exceeding difficult for us to obtain without Blue River's reputation in Silicon Valley and its inspiring message. My second focus for capital allocation is prioritized investments, leading to increased penetration in the aftermarket and retrofit businesses. Currently, our capture of the aftermarket parts business represents approximately 15% to 20% of our total sales. While we typically retain high market share with our first owner after the initial sale, our penetration drops throughout the latter years of the machine's life.
In addition to the opportunity in parts, the retrofit market offers significant potential to promote precision ag adoption deeper into the installed base beyond just new equipment. With the aftermarket parts opportunity, we see the largest opportunity to come from successfully executing our connected machine strategy. Telematics enabled machines allow operators to access John Deere's connected support feature, which utilizes expert alerts to notify operators of an existing or imminent failure. Importantly, these alerts are also available to the dealer, giving them the potential to proactively schedule maintenance to maximize convenience and uptime for our customer. Retaining greater shares of maintenance at John Deere dealers will drive part sales as the number of connected machines continues to grow.
Furthermore, we've made critical investments in all makes and remanufactured parts to allow dealers to promote tiered solutions for 2nd and third tiered purchasers. We're investing in enhanced e commerce capability or in the case of the Brazilian sugar market, we've announced plans to acquire UniMill, a family owned business with robust aftermarket solutions. In addition to the potential parts, the precision retrofit market also represents a significant opportunity over the next few years. While older generations of John Deere machines can be retrofitted with many of our precision ag features, we're recently we've recently built out a dedicated internal organization to capture this opportunity and increase penetration in the growing market. High speed planners are a perfect example of this dynamic.
The new planner market is only a few 1000 new units annually versus an installed base of approximately 70,000 planters consisting of 2,000,000 row units. The installed base market size is much larger than the new equipment, making retrofit solutions the fastest way to increase precision agriculture. A similar dynamic exists in spraying market for our ExactApply technology. Our market position combined with our dealer network gives us a great platform to expand the reach of our precision technologies through our retrofit solutions. Increasing the availability, convenience and technology for our aftermarket and retrofit strategy, We will be a contributor to our 15% margin aspiration by 2022.
Before moving on, I'd like to bring these topics together to illustrate how they all build upon one another to create a distinctive competitive advantage for John Deere. Our advantage first stems from our long term market position, which includes the world's largest installed base of equipment in row crop production. Next, we've spent the last 20 years investing in the foundational elements of automation, including guidance, telematics and data platform With the industry's largest installed base and most comprehensive collection of foundational technology, we then began developing job automation tools to layer on top of our solution stack. This is where the power of an integrated solution approach is most important. The base equipment and foundational technologies serves as the nervous system that enables the next generation automation features to work.
As we progress towards plant level management, we need to harness the full stack of base technologies, next generation automation tools and the recently acquired competencies such as machine learning and computer vision. This requires a high degree of integration and we believe we are best positioned to deliver that. The last critical component of this equation is the dealer network that can sell and support our integrated solutions to our customers. Our industry leading channel has been investing in their capabilities to service advanced technologies and this last mile support is absolutely essential to driving further adoption of precision practices in agriculture. Now that I've laid out our vision for capital allocation, I'd like to discuss cost structure realignment.
Our current organizational design and factory footprint have served us well over the last decade. However, over time, we've witnessed and contributed to 2 enormous developments. The first is the potential value of precision agriculture is even larger than originally imagined by Sam and I when we first launched the Intelligent Solutions Group back in 2012. Secondly, after a period of global growth initiatives, some markets like Brazil have matured as we expected, while other markets have been slower to develop. We believe there is an opportunity to compete in them more efficiently than we do today.
Given these two developments, we see the opportunity to create a more focused and leaner organization, one that is more suited to compete in the development of cutting edge innovations. Such as those in precision agriculture and one that is better equipped to serve differentiated global markets. Our first task is to ensure we are developing the resources proportionally to the greatest opportunities. This means we will shift resources within the company to continue building upon our highest value technical and manufacturing capabilities. Over the last year, we've made significant hires in the fields of machine learning, computer vision and data science.
Next, we will conduct a comprehensive assessment of our organizational structure. We recently launched a voluntary separation program to help facilitate this process. As an example, we began this in our IT department. During its recent agile transformation, during the implementation, we made adjustments to ensure that the vast majority of employees are directly engaged in creating solutions for customers, dealers and our operations. Similar to some of the precision ag facilities, where we're seeing now 90% of our employees are directly writing code.
Importantly, these organizational changes give greater levels of autonomy, empowerment and accountability to business owners, resulting in an organization that is more efficient to make decision and respond to dynamic market conditions. These traits, autonomy, empowerment and accountability hold the promise for unleashing the value and impact not only for our customers, but for our colleagues as well. This is the approach we'll apply throughout the organization. The entire enterprise will become more nimble as we narrow the gap between the speed of our technology business and the speed of our traditional industrial businesses. Ultimately, we anticipate increases in our span of control as well as fewer layers in the organization.
Regarding our footprint, we are beginning in enterprise assessment to ensure our assets more efficiently support our most significant market opportunities. Looking back on a period of global expansion, we see opportunities to streamline our overseas operations. As certain markets have matured differently than we originally anticipated. At this time, we estimate the organizational design and footprint initiatives will provide significant run rate savings in 2022. Ryan Campbell will provide further details on this subject in his remarks.
Now I'd ask you to keep in mind that these initiatives are in various stages of execution. As they progress, we will update to the forecast. At this time, I'd like to turn the presentation over to Ryan for a quick review of this year's guidance and perspective on our longer
Thanks, John. Good morning all and thanks again for joining us in Vegas for our CES Analyst Day and tour. I'd like to cover 2 topics, the industry dynamics impacting our guidance for the year and the expected outcomes from our current priorities. As we disclosed on our 4th quarter earnings call, we expect ag retail sales to be down around 5% in the United States and Canada and around flat in the rest of our markets. Globally, the Ag and Turf divisions net sales forecast is down 5% to 10% for the year, reflecting underproduction to retail demand in our small ag products.
For the ag and turf division as a whole, we forecast 2020 net sales to be a bit under 90% of mid cycle with North American Large Ag closer to 80%. While we still believe in the replacement cycle, there has been a pause over the last couple of years as our customers dealt with high levels of uncertainty with respect to trade, weather and overall demand for Ag Commodities. In the United States, during this period of uncertainty, the age of the fleet has reached its highest point in over a decade and our forecast for 2020 contemplates further aging. As the persistent uncertainty abates, we believe U. S.
Customers will invest in replacing their aged equipment, springing a resumed gradual recovery in the equipment replacement cycle. The actions we took over the last half of twenty nineteen in our North American Large Ag Business, coupled with a strong end to our retail sales performance, leave us well positioned from an inventory perspective. In fact, we ended 2019 with U. S. Large tractor and combine inventory to sales ratios at their lowest levels since 2014.
In addition to the age of the fleet, the impact of precision technology is increasingly driving customers to opt for advanced features that drive differentiated value in their operations. We find that despite this period of high uncertainty, our customers will continue to invest in unique products and services that drive agronomic value. A recent example of this is our early order program for planters this year. We closed around flat on the number of units sold compared to the previous year, but the dollar value was up a high single digit. This is evidence that we can drive growth in our operations even when the number of units we sell is flat.
Over the next few years, you will see us increasingly focus our R and D investments on the products and solutions where we can most differentiate and add customer value. Turning to our C and F division, we anticipate industry demand for earthmoving equipment to be down mid single digits, while our overall net sales guidance is down 10% to 15%. The difference between the industry forecast and our financial guidance reflects underproduction of high single digits following an industry buildup of inventory in 2019. Transitioning now to our longer term outlook. John already laid out the key priorities that will drive our strategy over the next few years and deliver significant outcomes financially, operationally and contribute to our sustainability goals.
From a financial perspective, we believe these initiatives amongst others will enable our business to structurally achieve 15% operating margins at mid cycle volumes by 2022. Our 2020 forecast has our equipment operations under 90% of mid cycle with operating margins between 10% 11%. At mid cycle volumes and at our normal mix, our current operations are set up to produce around 12.5% operating margins. To recap, bridging the gap between today's mid cycle margin potential of around 12.5% to our aspiration of 15% will be significantly driven by the execution of our 3 priorities. First, further penetration of our precision technologies in both North America and other international markets.
2nd, increased performance of our aftermarket business, including initial contributions from our precision retrofit initiative and execution of our cost initiatives, including organizational design and footprint as well as achieving our synergies from the Wirtgen acquisition. As it relates to our 15% margin aspiration, we expect precision ag to contribute in the following ways. We anticipate customers increasingly adopting our technologies either through introduction of new models with increasingly integrated technology like the latest ADAR tractor or through selecting premium features as an add on. Both result in a more favorable product mix as well as support our overall ability to achieve price realization. It is important to note that many of our premium features are just beginning to be offered in international markets such as Brazil and there is opportunity to drive incremental global growth.
Next, our precision offerings bundled with our product portfolio and our world class service and support through our dealer network will provide us opportunity to grow our market share position in our key geographies. To summarize, we believe the mix, pricing and share benefits of precision ag should contribute at least 1% to our 2022 margin aspiration. Turning to our aftermarket and retrofit initiatives. We see an opportunity to increase the performance of this important part of our business through the combination of the strategies outlined earlier. Execution should result in about a half point of margin improvement.
Lastly, we continue to execute on our initiatives to produce a more agile and efficient organization, allowing for increased speed of decision and execution and more responsiveness to changing market conditions. During our last earnings call, we estimated that our voluntary separation programs from both 2019 2020 would produce around $150,000,000 in run rate savings with $120,000,000 attributed to the 2020 program. Our updated savings estimate from the 2020 program is $90,000,000 with the combination of the 2019 2020 program savings now at 120,000,000 dollars Beyond the voluntary separation programs, we are working on additional organizational changes and our assessment of our overseas footprint continues. We will advise on the details of these activities on our quarterly earnings calls as decisions are made. These cost related initiatives as well as execution against our stated Wirtgen synergy target of €125,000,000 will also contribute up to 1% of margin improvement towards our incentive compensation structure for executives was changed in 2018 to reflect our increased operating performance objectives.
As we take measures to focus our investments, drive a more agile organization and optimize our footprint, we see many benefits to the operational outcomes we can achieve. Some of the benefits include higher levels of capital deployed in our businesses with the most potential for differentiation, thereby accelerating development of products and solutions that drive performance for our customers, operations that are leaner, faster to decision and execution and better equipped to respond to the dynamic markets that we operate in and a cost structure that allows us to serve our global markets and customers more profitably and sustainably. Before opening for questions, I'll turn things back over to John May for some closing comments.
John? Thanks, Ryan. In concluding my formal remarks, I'd like to go back to a quote that Sam Allen made in our sustainability report stating that never before has John Deere been more uniquely positioned to deliver sustainable outcomes for our customers, our employees, our investors, our communities and the world. By prioritizing our capital and cost structure, we will be able to do more than simply meet our near term financial goals. We will be able to sustain and grow the livelihoods of those who we proudly serve while protecting food security and the environment environmental stewardship of the land that they want to protect.
Our customers and the natural resources they protect, our precision ag innovations and the world class equipment will continue to create unique value by empowering our end customers to be more productive and more profitable, all while reducing the use of precious resources and inputs. Just to put some context behind this and the magnitude of the opportunity we see in front of us, I want to talk a little bit more about the journey to a plant level management. A single cornfield may have as many as 8,000,000 individual plants. This means we have the opportunity in every single field to complete crop production steps, more precisely to deliver more improved yields while reducing costs and inputs for our farmers. What this ultimately means for our new customers is higher yields and outcomes with fewer fertilizers and herbicides and less fuel and less emissions.
This is essential to making agricultural practices more sustainable for the future and you will hear more about it firsthand when you have the chance to meet with one of our customers later. For our employees, the change we are making will further unleash the enormous potential to innovate the technologies and services that our customers will choose. For us to succeed, we must attract, develop and retain the right mix of talent to realize the opportunities before us. As one of my over 70,000 colleagues is linked to making the world a better place. Every one of them is linked to making the world a better place.
And as CEO, I am committed to highlighting their connections to the higher purpose. You will sense my colleagues' passion and pride when interacting with them today. For our investors, we aim to deliver superior longer term and more sustainable returns. A key to this will be continuing to build on our active communications about our strategy, of which this event is one example, and deliver our aspiration of 15% margins gives us the opportunity to reward both shareholders and employees, while also enabling us to continue investing in the businesses for the long term. So in closing, at the high level, our strategy remains the same.
We are still deeply committed to our OROASVA model. Our use of cash priorities remain unchanged with a commitment to mid single A rating followed by the funding of our growth investments and then returning cash to our shareholders. Our execution of our strategy will demonstrate a greater degree of focus on products and services where we are most differentiated and offer the greatest opportunity to unlock value for the customers. The greatest tailwind we see for our business is the shift to technology happening in the marketplace today. This transition to advanced technologies plays to our strengths, where we are uniquely positioned in the industry to create value.
No other industry player offers the same level of integrated technology combined with a leading installed base and a world class dealer channel. The combination of these three key elements provides us a long runway of opportunities to drive our business results and increase our market share. Thank you.
At this time, we'll open it up for questions. Since this is being webcast, please wait until we get a mic in your hand so the question can be heard. One other item to note, as I mentioned earlier during Q and A, because of the medium term note issuance, we're unable to talk about JDCC and JDF today. So with that, we'll grab a mic and we'll get that around to answer questions.
Hi, good morning. It's Joe O'Dea of Vertical Research. First, just in terms of the margin aspirations, wanted to a clarification question around the buckets. And it sounded like one point of the margin improvement coming from precision ag, 50 bps from aftermarket opportunity and then the remainder would be from the cost initiatives that are out there. On the precision ag front, that would mean several $100,000,000 of operating profit coming from precision ag over the several years.
Can you talk about some of the visibility that you have to the revenue growth that's attached to that? We would expect that's pretty high margin business line, but it would still seem to indicate some pretty healthy double digit type revenue growth over the next couple of years.
Maybe I'll give you a couple of data points and then hand it over to Ryan to add on. So number 1, if you look at how are we actually capturing margin and revenue, I think we need to start there. Really, there's 3 different sources or opportunities for us to capture revenue and income. Number 1 is the in base strategy. And we mentioned the 8R strategy.
I talked about the 8R tractor where because that tractor is going to be in really high end, large crop applications, pulling our most advanced sprayer or advanced planters, our most advanced tillage tools, it is highly, highly equipped with precision technologies. As a matter of fact, if you even look at guidance, guidance now is embedded with inside the vehicle. You can't even see it. So it's an even greater integrated solution. That vehicle is or that model is the majority where we capture a lot of the value, a lot of the revenue, a lot of the profitability.
Over time, we have seen those products, products where we have the technology built into the unit itself. I can give you other examples if you want. Over time, we've seen year over year CP ratio in not only rep price, normal than normal than a normal rep price increase, which would be basically just what you're getting on price realization, significantly higher price increase related to the actual unit with better overall cost price ratios. So the unit costs more and it has greater profitability because of the technologies. Number 2 would be through advanced features.
1 of the best examples of advanced features is the predictive feed rate example that I gave on combines, where as a customer, you own a combine, you have the ability to acquire this technology. What it does for you is it sees the crop. It doesn't it's not about speeding up the combine or slowing it down. It's actually about maximizing the feed rate to make sure you're putting the optimal amount of feed in to ensure the highest amount of grain quality and the lowest amount of grain loss. So that would be an example of something that gets added on after the fact, a premium feature.
3rd area is prescriptions. Prescriptions, we've been more public on, where we've disclosed more on sales of after market guidance systems and then the related prescription. That business right now, while it's not as large as some may think it should be, I think it's going to significantly grow because now when you start having vehicles that are artificial intelligence based, a see and spray sprayer that every year, every week, actually every day it's getting better, we're probably going to have to have a different model on how we sell that sort of equipment and that could look a lot like a reoccurring revenue.
Maybe just the last piece of that. In our comments, we talked about about that's a key precision ag and driving adoption is revenue and margin accretive to us, but it also allows us to gain market share. And so we are forecasting as part of that bucket a kind of modest continued growth in market share with respect to large ag and certainly our Americas
geographies? Hi, good morning, Jerry Revich Goldin. Thanks. If we look at market based pricing for the Precision Act acknowledges that you folks have in the field today, market based pricing would mean it's about $1,000,000,000 top line business for you looking at companies like Trimble and others that offer solutions to those products. And if you're successful in driving adoption of precision planting, See and Spray, you would get to about a $3,000,000,000 type revenue number for your Precision Ag Technologies within, call it, 4 or 5 year timeframe.
I'm wondering when you folks look at the opportunities that as a management team, when do you contemplate breaking out the business separately because obviously it's a higher value add, higher multiple part of the portfolio and just if you could talk about the key items that you're looking for as you're thinking about whether to disclose all of
that? Mike? Technical side, I'll talk to you about more from a proprietary management side. The downside is, right now, we don't share a lot and that's to our advantage with our competitors. We don't share a lot on the costing of the products, costings on the technology.
We don't share margins. We don't share so it for us, it gives us a little bit of an advantage to 1, try a few different things with pricing, but also make sure what we're trying to do with pricing, it might be different than what others are doing. A lot of times on the hard iron, you try to price to feature. So, okay, this tractor has 7 features, you have 6.5, you're going to be this much less in pricing. We don't use that pricing model at all on precision ag.
We price to what is the return to the customer. So we look at we stood up production system teams around the globe. If you're a corn producer, we study your corn P and L inside and out and then we price specifically related to ensuring that you receive a return of less than a year on the technology. And then what's left, there's a significant opportunity for us as well. But I think breaking it out, I would like to see us go a little further down this path and continue to develop out more of the strategies and technologies.
But Ryan, technically, maybe you could add
It's something we think about a lot. We haven't broken it out for some of the reasons that John talked about. One of the challenges is that our value prop really is the combination and the stack of the solution inclusive of the actuation in the field. And so when we start thinking about precision ag, Exact Emerge planners, do you put the row unit, do you put the actual planner into precision ag? Some of the challenge that we have because we don't want to undersell the size of that business.
And really for us, it's really an integrated solution. That's where the value lies for us. But to your point, it's something we think about, how can we talk more about it and show more about the progress that we're making, but we're not ready to kind of commit to breaking it out.
Great, thanks. Steve Fisher, UBS. So technology is obviously great, but you do need to get farmers to adopt this. And we do have some senses, we go around and meet with farmers that the adoption rate of use of John Deere Operations Center still has a lot of runway ahead of it. So what can you do to increase the adoption of technology?
How motivated are you to do that? I know you mentioned having a group dedicated to, I think the aftermarket, was it? So can you talk about those points?
Yes. So I think there's a lot of different ways that we can increase adoption. The first thing that it starts with and this is something that we learned early on back in 2012, If you try to sell technology for technology sake, adoption is going to be very low. If you focus on selling customer value, measurable customer value where the customer sees an immediate return on their income statement, then the adoption will be swift. Great example of that would be, ExactEmerge planters, ExactApply sprayers, Combine Advisor, Technologies where a production set saw an incredible either savings from a cost perspective or a big yield bump.
So focusing on customer value is 1. As far as the My Operation Center, one of the things we've been working on hard is to build out all of those tools, tools that have value, not just a location where we're hosting and storing the data and then making connections to trusted advisors, But a lot of tools built into the system that create value. Some of those tools we are going to develop, a tool like field analyzer, where you have the ability to do very deep analytics of your farm and make real decisions that are going to make you have a higher productivity next year, reduce your input costs or leveraging tools from a trusted advisor that we have linked on the site. The other thing we're doing is a lot of the products now that come out require if data is passed out, say to an agronomist to write a prescription, it is then sent right back to the machine and the machine executes it. So it's not like the data leaves the system and then we're not a part of it.
The data will leave and come back in and then we'll execute the prescription. So there's lots of things we're doing to try to create that stickiness. And I think you'll see adoption. First of all, the market size is big. That's the other thing to think about.
If you look at go back to 2013, when we sold the most number of units of vehicles and then look at last year, we sold more guidance systems last year than we did in the year where we sold the most pieces of equipment in the history. So the market is big, the adoption is going to continue to go and we feel confident we're going to see high rates.
Yes. I think one other piece is just the importance of the dealer network. Those are the folks who are out selling, service and supporting and the dealer network has gone on a huge journey with us and investing in their capabilities, bringing in different types of skill sets. And when we began this journey, we did a lot of test farms. We did a lot of demonstrations with customers.
And that's actually passed now where dealers are running their own test plots where you can see ExactEmerge next to a non ExactEmerge planter and what do you get for uniform emergence. So this is still a very local operation in terms of farming. So being able to see those things with your farmer at neighboring farms is really, really important.
I wonder if you can talk about like a little more holistically about how the cycle looks in the future when you add all this precision ag to it. And then I know you don't make seeds, but sort of how the seeds are because we had an adverse weather effect for sure in 2019 and it didn't really impact the industry. So just can you give us a little sense of how you're thinking about how the cycles go over the next decade?
Yes. I think some of the indicators would say we're at the point where so for example, in Ryan's comments, he talked about where we were from the amount of used equipment that's in the industry age of the equipment, the actual age of the fleet are highest we've seen in the last 10 years. So some of those indicators would say that if maybe some of other variables that are influencing the uncertainty right now in agriculture were to change, the demand is there. We're seeing some positive signs on our early order programs, in particular, combines, much better than what we saw on our crop care and sprayer early order programs. So I think with the we need to see what's going to happen here with trade and to see if it's more of a positive free trade type outcome for our customers, which is The equipment is getting older.
The equipment is getting older.
Hi, Jamie Cook from Credit Suisse. John, one of the themes that it sounds like will be under your leadership is focus on areas where you can differentiate, focus on technology. At the same time, in your priorities, you say sort of address low performing product lines. And I'm wondering how much those 2 are intertwined, in the sense that what percent of the portfolio is underperforming and why is that? Is it because technology is less relevant or the markets are less mature?
Is it more of a DEER specific issue? And what's the strategy with those markets?
If you look back at our original strategy, which you were involved in and if you think through the philosophy of growing global, growing to markets like China, to India, expanding further into Europe, South America as an example. So not only John Deere, but several industry players made some assumptions on the rate at which those markets would grow. And as I said in my comments, some exceeded our expectations, some have not. And the ones that have not, we likely have over capitalized and have opportunities to run those operations more efficiently. We likely may be overstaffed from a salaried and wage perspective.
And I'll give you one example of an active project that's going on right now, where we're looking at the overall European market and taking a look at based on the state of the business, state of the economy, where our greatest opportunity is to differentiate because we do have areas, large ag in that region, where we're positioned better than anybody in the industry, make sure we're focusing our resources. Like I said in my comments, reallocating resources to that area, double down, capture share and then on areas where we're not as differentiated, we're going to have to make decisions to see how do we run the businesses better. And over time, you'll see examples of where we'll make changes. I think there's examples in CNF as well for sure. CNF went through a global growth phase, probably not as significant as ag, but there are opportunities there that we've been analyzing.
On the small tractorsmallag side, I'd say probably not as many. I think I would tell you the issue that we have there is just pure operational issue execution. We need to continue to get better at executing. We've got a great product, a great market, a great opportunity to grow that business. We just need to get better at execution.
You're welcome.
Thank you. Mick Dobre from Baird. I'm wondering if you can give us a little more color as to how you're thinking about building that aftermarket component of the business, the 50 basis points that come from there? And I guess I'm wondering, when you talked about 15% to 20% of your revenue coming from aftermarket, what exactly what target are you working with looking at 2022? And what is it that you're doing different today than you've done maybe the last 5
years to build that business?
Yes, sure. So first of all, today, we're at 15% to 20%. Today, we're at 15% to 20%. So we see the opportunity to grow that and grow it by moving further down into the 2nd owner, 3rd owner, etcetera. Some of the things we've been doing.
At our dealers for the last 2 years, we've had dealer specific goals of how many technicians, additional technicians you have to hire. And that goes to the comment that I had in the book when I was reading where I said, if the dealer captures the service, we're going to get the parts. If they're wrenching on the tractor, we're going to get the parts. So we're really focused on getting many more technicians into each one of these dealers so that we can expand our capacity to do that. We're also spending a lot of time right now looking at our e tools.
Some of the systems that we have in place to make sure we're running our parts business in the most optimal way need investment and we're working on that. We mentioned Unimill. Unimill is a unique example. We didn't tell the full story there, but UniMill is a market where the customer has bypassed the dealer. They're buying directly from Unimill, the manufacturer of parts.
So they and that country has gone that direction for that crop sugar. So they have a feature, a process, a system, an e portal that enables that. We don't have that capability today. So we're also trying to acquire new capabilities. Mark, I don't know if you want to add anything to that or okay.
The other thing, the retrofit, which we put in that category, that's a several $100,000,000 market that we don't participate significantly in today. And we believe with kind of the focused approach that we have standing up a group that's specifically focused on that, allocating more resources to that. There's no reason why we can't significantly increase our penetration into that market. That's an attractive market from a margin perspective, but it's also can be a driver of precision ag adoption.
Hi. Thank you. Anne Deitlin, JPMorgan. Just one comment and one question. Your recurring revenue today in ag and turf is only $214,000,000 It's like 0.8 percent of sales.
So I'm not sure I see how that can become meaningful in the time frame where you have said given that to date you've been willing to forfeit recurring revenue for penetration. So if you could talk to that. And then you talk about the whole the fundamentals in the industry, all this is great. But if U. S.
Agriculture is in secular decline because of the high currency, high FX and exports remain under threat. I mean, are we throwing all this money at an industry that could be in secular decline? Have you addressed both of those?
Yes. So Anne, on the first one, really right now, which is the 3rd piece of revenue and profitability opportunity that I mentioned, It's really a customer that has our guidance system, but then pays for a higher fidelity guides capability. So a different level of granularity. Actually, the money that and Ryan is probably going to kick me under the table, but the money that we make on just the guidance business more than funds what we're investing in the rest of our precision ag business. So while it's small, it's a very profitable piece of our business.
And then I'd also like to shift you to think a little differently. That is a subscription where you pay a subscription per year to have access to that signal. It's a signal. What I was suggesting in my comments were we're likely to see new business models with artificial intelligence. And here's the reason why.
You a farmer will buy a See and Spray sprayer that goes into the field with a very robust database of images that is used to determine the difference between a weed and a healthy plant. And then as it's going through the field, it's capturing more images, it's getting smarter. That last phase is the machine learning. So after it's seen something, it sprayed it, then it closes a loop and says, okay, we have a new image, we have something new. By the time you get to the end of the season, that next generation planner that will sell, that next year's planner is going to be significantly more capable than the one that just ran the year before for two reasons.
1, the data set and secondly, computing power. Every year, the computing power is going to get changed. So we'll change off the boards that sit on there because there's a new set of boards that can process faster. So how do we make sure that the customer that bought in 2020 isn't extremely upset in 20 21, we're going to have to have some reoccurring revenue model to do that, where we're flipping customers out. So I'm giving that early warning, because I think that going forward, you could see more of this is my point.
Yes. On the question on U. S, Brazil, we think the long term fundamentals for agriculture growth and demand for grains are going to continue. And so both markets are going to be needed to produce and support that growth. We are not forecasting forecasting growth in our mid cycle in the U.
S. To get to our 15%. In fact, as the math works and some of the higher years fall out, we expect a little bit of a decline in the U. S. Market as we march towards our 15%.
What we believe will offset that and we have the history to show is our average selling price in a lot of our large equipment is growing faster above and beyond our price realization because of these adoption of the advanced features. So to the extent that through the math of our mid cycle that the U. S. Market starts to come down a little bit, we're very confident through market share gains and our ability to continue to drive feature adoption that we can offset that from a revenue perspective.
Hi, Ross Gilardi from Bank of America. I'm just wondering if you guys can address a little bit more how Brazil is actually factoring in your thinking towards the 15% margin. I mean, clearly, this has been one of the most attractive, if not the most attractive growth market in the world. You allocate a lot of resources to bring your precision ag features down there. One of your largest competitors is guiding to their 4th consecutive losses year of losses in the South American market next year.
And I'm wondering, are there any structural margin headwinds that have developed over the last couple of years as this region has just become more and more competitive. Because presumably right now, Brazilian farmers are making a lot of money. And in the last couple of months, the demand for equipment in Brazil has been terrible according to the industry data. Wondering how Phenomie factors into your thinking? Is the whole business model of how equipment is going to be bought in Brazil going to be changing right now?
So it seems like the one maybe phenomena is going to be a thing of the past. So could you just address some of those topics? Thanks.
Yes, sure. Maybe I'll start. First of all, for us, you're going to hear this over and over, but our strategy is to focus on customer value and delivering customer value. And in that market, we've been working hard the last 3 to 5 years to make sure that we have a portfolio that is capable of leveraging all is capable of leveraging all of precision ag technologies that are getting developed here in this region. And we've gone through that process.
So you may see a farmer with a sprayer that doesn't look like it has a lot of technology, but it's ready to adopt once the market's ready to take the tools on. So we're actually really excited about the penetration that we're going to see on the precision ag tools down there. And we'll see it across the board from sprayers, from planters, from tillage tools. And as a matter of fact, this last year, we did a limited launch on some of the technology just to make sure we could support it. The ExactApply sprayer, we did a very limited launch.
We sold out the 1st day, because we want to make sure we could support the customers. So the demand is there for precision ag because you're delivering customer value. You're decreasing their input cost. You have you can demonstrate improvements in yield gains as a result of using a ExactEmerge planner. So we feel like the market is going to continue to be a strong market for us.
We continue to gain share year over year. And I was just down there and did a deep review of their entire portfolio. I can tell you in my years working with Deere, we have the best portfolio we've ever had in Brazil and in Region 3.
Maybe real quick and then I'll give it to Josh to talk maybe a little bit about Phenomie. We don't disclose margins by region. We talked U. S. And Canada and outside U.
S. And Canada. But what I will say is our 2022 margin target for region 3 is the same as region 4. And we have high confidence that we can achieve that. Yes.
So Region 4 is basically U. S. And Canada, market like Australia and then Region 3 is Mexico South.
So maybe quickly just on Phenomie, Ross, to your point. So in 2019, we ran 4 months probably without Phenomie funds kind of in the April into July timeframe. So that certainly had an impact and some hangover. I think when you think about that market also units wise is very, very focused on if you think about tractors. The majority of the units are small horsepower, while from a value perspective, it's much more important for the higher side.
And I think the lack of Phenomie probably had some outsized impact on smaller producers, where larger producers over the last couple of years of interest rates have come down, have increasingly more access to private bank financing. That said, there's the administration down there has talked about the future state of moving further away from subsidies on financing. So we think that's something that over time will likely occur. But we think we're prepared to be able to handle that. And again, with the private bank market being attractive and competitive has also filled some of the void that's been there from a large customer perspective.
I think we'll take one more question before we kind of close out.
Hi, Courtney Yakavonis from Morgan Stanley. Just wondering if you can talk a little bit about how these investments in precision ag will affect the 70,000 installed base that you have right now. Obviously, you've talked about additional share growth. But if you think about the replacement cycle being such a strong part of the thesis on the name right now, how will this impact replacement cycles going forward, especially if you're going to be offering retrofit solutions to some of the older equipment?
That's a good question. It's one we get a lot. It's a very different customer than a customer that's going to buy new. So if you picture a customer that comes in and buys a brand new ExactEmerge planner with an 8Rx that has the electrical connections and this optimal solution, that next tier customer will be having a tractor with a PTO generator and an old planter that gets retrofitted that has precision ag capability and they're going to capture value, not all the value that the new unit has. But we early on got a lot of pushback from internally of are we going to cannibalize new units and we haven't seen it at all.
And which and I went out and personally visited customers that had retrofitted their units. And I said, why didn't you buy new? And they said, well, I got interested in buying a new planner. I went on the Internet. I found this perfect sized toolbar that I needed.
I stripped it down, added your row units and this is perfect for me. So it's a different customer. And we're going to continue to advance on the new size and bring new derivatives to use planting as an example to bring new versions of ExactEmerge. If you look just one more data point to make you feel better, if you look at our EOP for planters this year, our overall adoption of precision ag was higher and our overall revenue, the revenue that we sold for planters even though we sold the same amount of units, our revenue was higher because they're much higher featured units. So adoption on the new is still happening.
Yes. I mean, I think in short, we look at those as somewhat different markets and we think you continue to see one thing that we see across the chain, 4 to 5 owners in North America, for example, is a desire to move up in terms of technology no matter where you are in that chain. So you're putting maybe a 3rd or 4th owner into an upgrade performance retrofit solution, That's a significant improvement for them in terms of technology and doesn't necessarily impact what's going on potentially 1st or second owner, so demand throughout there. So I think with that, we'll wrap up. We really appreciate everyone's attendance.
We'll close this out. Brent's got a couple of announcements just on in terms of where we're headed from a logistics perspective. For all those on the webcast, we appreciate your participation as well. Thank you.