Farm equipment makers cut output ahead of planting season as US inflation bites

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Don Nething, 62, transfers a load of corn from the combine harvester in Ravenna, Ohio, U.S., October 11, 2021. Picture taken October 11, 2021. REUTERS/Dane Rhys

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March 25 (Reuters) – Howard Dahl has stopped taking farm equipment orders from customers as parts and labor shortages and rising inflation threatened profits at his Dakota-based company Amity Technology North.

He did so even as high crop prices suggested strong demand for the sugar beet and silage machines his company is making ahead of the spring planting season.

“Normally we start selling equipment in early November,” Dahl said. “Largely due to supply chain uncertainty, we limited what we were going to build.”

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A shortage of raw materials imposed increased costs on manufacturers even before Russia’s invasion of Ukraine sent gasoline prices soaring and clouded the outlook for global inflation. Now overall material costs for Dahl have jumped 21% year-over-year to March, while the price of steel has doubled, putting it in a tight spot to price equipment. and control costs.

Big equipment makers are also battling to protect their margins after cash-rich farmers helped them post record profits over the past year. Read more

Deere & Co (DE.N) said on a recent earnings call that it will suspend advance orders for equipment not yet in stock, although it maintains a positive outlook for margin growth. Read more

“Our order books across all of our businesses are mostly full for the year, except in a few instances where we have suspended orders to allow for more aggressive pricing,” John May, CEO, said on the call.

Rival CNH Industrial told Reuters it was following suit.

“With high inflation, we’re careful how far we go,” CNH Industrial chief executive Scott Wine said in an interview. “Yes [input] prices go up too much, we’re not going to sell something and lose margin.”

Farmer income is expected to drop $5.4 billion from 2021, according to the U.S. Department of Agriculture, as federal aid payments provided during the pandemic decline. But tractor sales remained strong in February as farmers face high crop prices, rising 9.2% from the same period a year ago, according to the latest report from the Association of Equipment Manufacturers. .

Yet inflation is pushing businesses to assess how well they can pass costs on to consumers. As commodity prices continue to rise, companies may need to find other alternatives to cushion the impact on large equipment like tractors and keep margins intact, analysts say.

The global chip shortage has led automakers to produce key parts like electric vehicle batteries in-house, while working to lock in the supply of key materials like lithium through longer-term contracts. or even investments in mines.

For Dahl, miscalculations of inflation proved costly. Now all the cards are on the table to preserve profits.

“We haven’t been raising our prices fast enough, so we’ve had some earnings erosion,” said Dahl, who has raised prices 18% since last June. I’m looking carefully at all the alternatives.”

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Reporting by Bianca Flowers; Editing by Caroline Stauffer and Diane Craft

Our standards: The Thomson Reuters Trust Principles.

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