Farming’s Post-Pandemic Landscape
As the agricultural market navigates the post-pandemic landscape, farming in 2022 is unlike any other point in history. This landscape includes continued struggles with supply chain disruptions, commodity price increases and pandemic stimulus dollars which have caused a surplus of spending capital for the average farmer. From farm implements to chemicals and fertilizer inputs to the livestock they raise more dollars chasing fewer products is causing increased inflation, changing pricing dramatically for the farmer in every aspect.
New equipment is simply hard to come by these days. Due to continued problems from the production shutdowns and backups at the ports along the west coast, new equipment is slow to get to the local dealers. To combat the decreased production, local dealers across the United States -- and across all brands -- are facing drastic cuts to their inventory allocations. Many dealerships are challenged by a 50% reduction in their new product allocation, causing a backlog of demand. Presently, if a farmer were to order a new tractor, the expectation for delivery would be some time in 2024 with an increase cost of 10% to 15% over last year’s pricing. A new wheel tractor, if ordered today, has an expectation of arriving in the third quarter of 2023 with the same price increase of 10% to 15%. This type of backlog is comparable through all types of agricultural implements from the planter to the combine and all equipment in between.
An even more significant concern lies in the technology industry. With the ongoing shortages of chips, purchasing a new globe or display is challenging. This situation is driving the price of used globes and displays to exceed the price of a new one. Unfortunately, at this time there is no way of knowing how long this supply issue will continue creates a vacuum of information, leaving both the dealer and the farmer subject to supply constraints.
All of these issues are adding up to a large increase of value in the used agricultural implement market. Today, a late model, low-hour implement of any size is being valued between 15% - 20% higher than in previous years. Older, higher-hour models are showing a 6% to 8% increase. All this is happening with limited negotiating ability by the farmer. Due to this situation, another concern is a greater need for parts to keep the tractors we do have in production running. Again, this is not easy to navigate because the supply chain disruptions have caused a large overall decrease in inventory. All dealers are currently encouraging farmers to have pre-season inspections early in order to have the parts available to keep the current implements running smoothly.
With all the post pandemic challenges facing the agricultural industry, the process to purchase equipment has changed drastically. Since inventory is so low, renting is almost a thing of the past, forcing farmers to really look closely at their operation and assess: need versus want; new versus used; money versus time. All of this has caused an interesting dynamic for the farmer, the dealer and the financial institutions that support them today.
This article was written by Warren Remold, Sr. Chattel Appraiser. Check out more insights from our thought leaders.