Deere & Co. (DE) cut its full-year profit forecast Wednesday amid a continuing slide in demand for farm equipment and construction equipment.

Deere, the world's largest maker of farm equipment by revenue, now sees fiscal-year income of $1.1 billion, down from February's outlook of $1.5 billion and Wall Street analysts' estimate of $1.31 billion.

Farm incomes are falling from last year's record levels amid the reversal in commodity markets, and North America is no longer providing a bulwark against poor demand conditions in Latin America.

"There's a lot of uncertainty as far as how things develop for the economy," said Marie Ziegler, vice president of investor relations. "We just felt it was prudent" to lower the income outlook, she said during a conference call after Deere reported a 38% fall in fiscal second-quarter earnings.

The company now expects overall sales to fall about 19% for the year, more than double the decline forecasted earlier. For its fiscal third quarter, the company predicted sales will plunge 26% from the same period last year.

Deere's stock was recently up 5.84% at $46.38 a share.

The Moline, Ill., company's performance is a barometer of global conditions in agriculture. But as in recent quarters, lower prices for farm commodities, tighter credit and the economic recession continue to hold down sales, particularly overseas.

Net sales of farm and construction machinery outside the U.S. and Canada fell 30% in the fiscal second quarter ended April 30.

Construction and forestry equipment sales fell 55% in the quarter, and the company reported $75 million operating loss in its construction division during the quarter. Deere now expects worldwide sales of construction and forestry equipment to drop 42% this year from 2008, compared with its previous forecast of 24% decline.

Deere executives rejected some analysts' perceptions that the company reacted too slowly to the severe pull back in demand for construction equipment. Competitors Caterpillar Inc. (CAT) and CNH Global N.V. (CNH) have idled plants and slashed payrolls to lower bulging equipment inventories.

"I think this division has been anything but late to track this" decline, Chief Financial Officer Mike Mack said. "I think they're managing it, given the circumstances, as well as they can."

Demand for farm equipment overseas showed no signs of improvement. Deere now expects industry-wide sales of farm machinery in South America - a key growth market for the company - to fall 20% to 30%, compared with Deere's previous forecast of sales dropping 15% to 25%.

The company said order cancellations in South America were higher than typically seen as the region suffers from a drought.

"South America is a mess," said Lawrence De Maria, an analyst for Sterne Agee & Leach Inc. "The hope is that the market stabilizes, but it's not like there's going to be a V-shaped recovery there."

In the U.S. and Canada, Deere sees farm equipment sales being flat to slightly down this year, after earlier forecasting that sales could be up by as much as 5%. The company had been counted on demand from U.S. farmers, who are not nearly as leveraged as farmers overseas, to offset falling equipment sales elsewhere in the world.

But U.S. farmers have grown increasingly cautious about buying, particularly amid widespread reports of tougher collateral standards for bank loans.

Deere lowered its forecast for U.S. cash receipts from farming this year to $303.3 billion from $313.1 billion previously.

In the fiscal second quarter, the company reported income of $472.3 million, or $1.11 a share, down 38% from $763.5 million, or $1.74 a share, a year earlier. Net sales decreased 17% to $6.75 billion as price increases of 6% offset unfavorable effects of foreign exchange of 6%.

Analysts expected earnings of $1.07 per share on revenue of $6.6 billion. Deere's income results were helped by a favorable tax rate in the quarter that analysts said added about 17 cents to the company's earnings per share.

Financial-services earnings fell 20% on a higher provision for credit losses, lower commission from crop insurance and narrower financing spreads.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

(Kerry E. Grace contributed to this report)