You cannot count on the machine or parts being available at the dealership. “For anybody who thinks there isn’t going to be a shortage of something this summer, they really haven’t been paying attention,” says Bret Julian, director of sales at Vermeer Forage Solutions.
Change Your Historical Mindset
Farmers have historically relied on the used ag equipment market to hedge and fill gaps when a piece of new machinery could not be economically justified. Farm equipment was seemingly always readily available. This led farmers to develop a historical pattern for equipment purchases during the season it was actually needed. Farmers now need to realize this historical pattern is no longer relevant. This is going to require a mindset shift. “The danger is relying on the past way of thinking,” says Greg Peterson, owner, Machinerypete.com, a marketplace for buyers and sellers of used farm equipment that offers farmers a vast selection of equipment listings in one place.
Finding equipment is not simply going to be a decision between purchasing new or used. “Even if you want to buy new equipment now, most of it is already pre-sold for 2022 and there is historic tightness with used equipment on dealer lots all over the country,” says Peterson. “Used inventory levels are at an all-time low at dealership lots across North America.” This is a global problem as manufacturers are facing component shortages that limit new unit shipments as planting season kicks off in the northern hemisphere and harvest season kicks off in the southern hemisphere.
To illustrate this point, Peterson compared the number of tractors that exceed 175 horsepower for sale at MachineryPete.com versus three years ago. “There are 52.7% fewer high-horsepower tractors for sale now versus three years ago.” If you look at tractors that are less than five years old, the situation becomes even more dire. “Compared to three years ago there are 79.3% fewer tractors for sale today.”
Of course, this translates into increased competition for what is available. “When a nice tractor shows up for sale at an auction, they are bringing rising prices,” notes Peterson. “And this is going to be with us for a while.” Once the used inventory is diminished, it will take time to refresh the supply of used units. This mirrors what is occurring in the automotive market, if you can find a new unit the pricing can be more attractive than used.
Manufacturers Adjust to Market Realities
Compounding the farm equipment/parts shortages is that while other industries were sidelined during the pandemic, agriculture production continued unfazed.
“Our business on the hay and forage equipment side never stopped,” says Julian from Vermeer. “A normal person in the field would think that everyone would stop buying equipment to see what was going to happen. But as far as the demand side, it never stopped for us.”
This high demand came at a time when the supply chain was becoming intermittent – starting, stopping and slowing down. Component disruptions are causing delivery delays that can measure in weeks or more as manufacturers wait on key parts. “It has been one or two parts that does not allow us to complete a machine,” notes Julian. “We have been able to supply generally, by season. That is our goal. When we take dealer orders in the late summer, then we do everything we can to get those orders fulfilled before the season gets there.”
There is juggling that is going on at some manufacturing facilities in terms of product mix. “We have had to do a lot of toggling back and forth,” notes Julian. “That is not normal manufacturing. We make those decisions based on what we have the parts to actually build. Then if we have to make a decision between one line or the other line, we have a lot of data that we can consult like previous year’s retail volume. Our dealer field inventory metrics also show us how well we are positioned with equipment on dealer lots.”