The company said its material and freight costs would be $400 million to $500 million higher this year than in 2007, double the price inflation it originally expected.
Deere said profit rose 22 percent to $763.5 million, or $1.74 a share, in its fiscal second quarter ended April 30, from $623.6 million, or $1.36 a share, a year earlier.
Revenue increased 18 percent to $8.1 billion, lifted by a 46 percent jump in equipment sales outside the United States and Canada.
Analysts on average had expected the Moline, Illinois-based company to report earnings of $1.74 a share on revenue of $7.62 billion, according to Reuters Estimates.
"It was a good quarter," said Matt Collins, an analyst at Edward Jones. "But investors were clearly looking for more. Deere had been leaping over earnings estimates for the last two years.That couldn't last forever."
Deere warned that "escalating raw material costs and the tight supplies of various parts and components, including tires, are expected to have an impact on operations for the balance of the year."
As a result, the company said it expects net profit of $550 million to $575 million for the third quarter and $2.2 billion for the full year.
Eli Lustgarten, an analyst at Longbow Research, said that translates to earnings per share of $1.25 to $1.30 for the third quarter and $5 for the full year.
Analysts, on average, forecast $1.49 for the quarter and $5.20 for the year, according to Reuters Estimates.
Lustgarten said of the second-quarter results, "It's a good quarter. But it didn't knock the socks off anyone and the guidance is very conservative."
Michael Jaffe, an analyst at Standard & Poor's, reiterated his "hold" rating on Deere shares, saying weak U.S. residential markets -- the company also builds construction and forestry equipment that has been hit by the housing downturn -- would partially offset the strength coming out of the farm markets.
Deere and rival farm equipment makers CNH Global and Agco are enjoying record demand for their products thanks to the surge in investment in biofuels and increased consumption in the developing world.
Deere shares were down $8.12 to $82.07 in morning trade on the New York Stock Exchange.