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What led to the machinery shortage of 2021 and what to expect for 2022

“It was the perfect storm,” laments Curt Blades of the Association of Equipment Manufacturers (AEM) in describing the conditions that produced the most severe shortage of machinery in our lives. “A series of events no one could have anticipated slammed the entire industry the last 18 months, which left farmers, dealers, and manufacturers scrambling.”

Will 2022 be any better?

Actually, the current iron famine has been years in the making with the shortage stage already being set in 2013.

Demand for new machinery collapsed then due to falling commodity prices. In response, manufacturers pared back machinery production.

At the same time, dealers began to suffer an abundance of used late-model machinery that had come in on trade with brisk sales from the previous five years. Companies aggressively worked to rid themselves of this used surplus by arming dealers with buyer incentive programs that slashed asking prices, offered no- or low-interest loans, and extended warranty coverage through attractive certified pre-owned programs.

The carrots worked: Buyers consumed the glut of used iron. This drew buyers’ attention away from new iron, further eroding already sluggish sales. The industry settled in and kept its facilities at a simmer, turning out new machinery as demand warranted. This shortfall in new machinery sales threatened the future supply of used equipment even further.

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Then COVID Shut It All Down

So it went until COVID-19 hit.

Manufacturing plant output of not only machinery but also many of the components needed to build that equipment slowed to nearly a standstill.

Then, as commodity prices shot up last year, so did demand for new equipment. Farmers, carrying low machinery debt and wanting to satisfy a justified pent-up demand for new technology, began ordering iron in droves.

Large tractors and harvesting equipment sales jumped, and demand for anything that worked the soil or planted grew more than 25%. 

At the same time, demand for a great many consumer products also swelled, readily consuming an increasingly scant supply of steel, tires, computer chips, and parts. 

Other black swan events like last winter’s freeze in Texas conspired to further starve supplies. In that case, weather shut down petrochemical plants not accustomed to operating in freezing temperatures. Those plants feed the raw supply to make plastic components. Exacerbating conditions was the challenge to find or keep labor for manufacturing and shipping supplies and whole goods.

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New Iron Output Stalls

All told, these and other events created one of “the worst supply chains I’ve seen in my career,” observes Scott Wine, the head of CNH (Case New Holland) Industrial.

Conditions caused new iron output to slow to a crawl. Dealers, who had been longing to get back to selling new machinery since 2013, had to tell customers they had to wait, sometimes as long as 12 months, to get a new tractor, field cultivator, or planter. 

Farmers immediately turned to late-model machinery to meet their needs, but rapidly it began to disappear.

What of 2022?

The good news is that new iron supplies will return. “Manufacturers are using every tool at their disposal and even creating new tools to meet demand. They’ve become very creative at finding supplies,” AEM’s Blades says. “We are guardedly optimist the industry will be able to meet all demand in the near future.”

Manufacturers and dealers, starved of sales since 2013, are hungry to meet demand. Already an increasing amount of new iron is showing up at dealerships.

At press time, sales of combines had grown 14% since the first of the year, 100-plus-hp. tractors 27%, and four-wheel-drive (4WD) tractors skyrocketed at nearly 40%.

“True, our lots are usually full this time of year,” observes Neil Messick at Messick’s Equipment in Pennsylvania. “We do have some things in stock like large New Holland tractors. But other equipment such as small tractors, planters, loader attachments, and UTVs are still in short supply.”

“Although equipment availability will be tight you have a good chance at meeting new machinery needs by next spring if you preorder equipment now,” advises Gary Vahrenberg of Vahrenberg Implement in Higginsville, Missouri. “Many manufacturers like AGCO [Vahrenberg Implement sells Massey Ferguson tractors] are putting a priority on purchase orders over dealer stock [floor plan] orders.”

Buyers can claim a 2021 tax deduction if they prepay for the equipment this year. They may have to pay a surcharge that covers the increased cost of steel, plastic parts, or computer chips. Used as a method to avoid increasing the wholesale cost of a machine, such surcharges will disappear as the supply chain reduces input costs.

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Used Iron Shortage 

Used machinery, particularly late-model and large equipment, will continue to be in short supply and demand high prices during 2022. “I don’t see this situation changing much until more machinery comes in on trade,” says Tim Meyer of Steffes Group. “What is driving this trend is the lack of equipment in good condition with low hours. Then again, such machinery always goes for a premium.”

The challenge with late-model, low-hour machinery is that often this equipment, which is coming in on trade, is already sold before it reaches the dealership. “The really nice equipment doesn’t sit on our lots very long,” observes Jeremy Knuth of Heritage Tractor, a John Deere dealership network in Kansas and Missouri. 

Knuth’s advice is to hit the internet and start searching.

“This is a big advantage you have today — being able to search the country,” he adds. “Dealers are certainly willing to help you search as well as make arrangement to have equipment shipped in.”

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Hottest Iron at Market

Larger tractors, combines, and planters are experiencing the most significant used supply issue and resultant price increase. Note how the prices rise while the volume decreases. If your farming operation needs this type of equipment, you should be checking sites like Tractor Zoom daily. Reasonable prices for some gems are happening, just not as frequently as in the past. 

On the other hand, sprayers and compact and utility tractors have seen significant price increases. Yet they are in relatively ample supply. Be wary of overextending yourself on a frenzied buying spree for these exceptions. 

With smaller tractors, manufacturers’ production lines are agile and should be able to fill this void faster. Don’t be surprised if manufacturers overproduce now and create a glut of smaller tractors that will be seen on auction blocks for the next decade. 

Sprayers will be especially interesting to watch in December. In Tractor Zoom’s data, pull-behind sprayers over 1,000 gallons and with booms over 80 feet were one of the few categories that saw an average annual price drop of 15%, while equipment at auction increased 50%. If self-propelled sprayer values continue to rise, at what point will farmers revert to pull-behind? 

If you think that a great deal will eventually show up, keep in mind that there is one supply issue that has not received much news attention. How many retirements or liquidation auctions have you seen in your area this past year?

Probably not as many as the year before. This may also be influencing supply. Tractor Zoom can filter auctions by type: The occurrence of retirement and liquidation auctions, as a percent of all auctions we are tracking, is down 12% from a year ago. 

Equipment supply is no longer a guarantee. The current grain stocks-to-use ratios are among the lowest since the early 1970s, which should support prolonged healthy commodity prices.

As a result, equipment demand will likely remain high and continue the scarcity of tractors and combines.

A toolbox and a right-to-repair manual may be your best short-term bet until supply chains respond and prices stabilize. If your operation needs larger equipment and you can afford the long-term payments, I suggest watching TractorZoom.com so you can find the diamond in the rough before it’s gone.

Auction Iron Conditions

By Andy Campbell, IronComps.com

Tractor Zoom has seen a frenzied search volume this year, akin to a gold rush, driving up values for hard-to-find equipment. Yet the same force pushing row crop tractor values higher is not necessarily the same leverage behind self-propelled sprayers prices. Going into the last month of the year, be wary you do not overextend your long-term machinery expenses by treating all purchase decisions the same. 

Since it began collecting data in 2017, Tractor Zoom has helped farmers find over a quarter million equipment sales from 500 auctioneers – and now dealer listings as well. All this data enables a real-time view of trends. Sale values, supply, hours, horsepower, size … you name it. It is with this data that we have compiled one of our more robust analyses yet.

Commodity prices, higher demand, and tight supply chain issues are driving up equipment prices. These factors do not weigh equally across all categories of machines, though.

The graph below compares Tractor Zoom price and volume data from January to August of 2020 against that same time period in 2021.

The blue bar graph for each category is the change in average price for each category. The light blue bar is the percent change in the number of sales for each category in the Tractor Zoom database. This analysis only includes machines that were produced in the past 20 years and sold for over $10,000.

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