The tractor market has been in a unique place since the pandemic started. What does 2022 look like for it?
Since the beginning of the COVID-19 pandemic and throughout 2021, used tractors have been at a premium, while supply-chain disruptions upended the availability and pricing of new models. But that was then … and this is now. So what’s next for the tractor market?
The good news is: 2022 will remain a great time to sell a used tractor. Meanwhile, heightened demand and challenged supply will continue to be the theme for those seeking new ag equipment this year. According to the Association of Equipment Manufacturers (AEM) fall member survey, all signs point to double-digit sales growth in the field, this on top of historic growth in 2021.
A combination of pandemic-related supply chain disruptions and labor shortages are the primary reasons so many ag producers find themselves in the same situation as car-buyers. Whether computer chips for cars, or parts for tractors, the story is expected to remain the same for at least another year. And while new parts and machines might be a bit slow to come off the assembly lines, for those with used equipment to sell, this is a hot time indeed.
Meanwhile, local dealers say that while supplying their customers’ needs has been more challenging this last season, they’ve been able to keep up with demand and will be right there with them for the duration. Both Karl Locascio, marketing director of Bane-Welker Equipment, and David Hoefling of Hoefling Truck and Tractor said it might be 2023 before the market is back to normal.
Historic Demand vs. Challenged Supply
A leading trade group for the manufacturers of North America, the AEM’s fall member survey states more than 80 percent of manufacturers reported difficulty filling employment positions in their factories, with 95 percent complaining of supply chain issues and widespread inflation driving up prices of raw materials. Optimism remains though in terms of the overall global economy as nearly three-quarters believe the U.S. and their own companies will fully recover from the COVID-19 shutdowns within a year or two.
In terms of supply chain disruptions, 95 percent of AEM members reported experiencing these last year, with 72 percent expecting them to worsen before improving, at least through the beginning of 2023. Approximately 60 percent of agriculture manufacturers polled said they’re making adjustments to inventory management in advance of what all expect to be another busy year.
In terms of inflation, the overall consumer price index spiked 5.25 percent last year, with prices for farm machinery parts jumping 12.67 percent, plows and other attachments increasing 11 percent, and planting, seeding, and fertilizing machinery moving up 8.07 percent.
All of this is compounded by a labor force that has been shrinking since 2008. Historically, members of the Baby Boom generation have been retiring at a pace of about 2 million annually, with 3 million retiring in 2020, along with 1.1 million other workers for a number of reasons, according to information provided by the AEM. Labor participation among prime-age Americans is actually at a record low, with 2.4 million women having left the workforce recently, and prime-age males dropping out of participation from 94 percent in 1980 to 89 percent in 2019.
It’s no wonder, that 87 percent of ag equipment manufacturers report difficulty filling positions. In the meantime, farmers need parts. With net farm income having increased about 19.6 percent in 2020, producers are in the market to finance new equipment. Sales data for 2020 through September shows 2WD tractors under 40 horsepower were up 10.5 percent, with those over 40 horsepower up 9 percent, and the 100+ horsepower machines up 2 percent. Self-propelled combine sales were up 3 percent, with 4WD tractors up 3 percent.
Hoefling said he’s never seen a market quite like this.
“There’s absolutely higher demand. I’ve done this 40 years and I’ve never seen the demand what it is with the inventory so low,” he said. “Right now, any tractor that has a loader on it, it just comes in and goes right back out.”
Across All Boards
Big or small, the story is the same. Hoefling’s dealership and business is based in Washington, Indiana, about 64 miles northwest of Evansville, handing both new and used equipment for agriculture and construction alike. Bane-Welker Equipment is a 100 percent employee-owned company with dealerships throughout Ohio and Indiana handling both agricultural and construction equipment.
Locascio said business has been good for sure given the success farmers have had with high yields. The company exceeded its 2021 goals and they intend to keep that going forward in 2022.
“The last two years have been surprisingly good,” he said, crediting the team’s parts departments for ordering ahead and planning as early as 2020 for supply issues.
Hoefling likewise has been hopping.
“We’ve had a really good year, but it’s been tough,” he said, noting he’d been in Kentucky that day picking up equipment. Just the day before he’d been to Indianapolis to pick up equipment that wound up being sold by his team before he made it back to Washington. Hoefling has a billboard advertising his offer to buy tractors for cash, and he said the calls are pouring in as folks want to sell, and others want to buy. Nothing stays on the lot for long, he said.
Both Locascio and Hoefling said they expect the market to regain some sense of normalcy by 2023.
“This has definitely had a longer tail than I thought,” Locascio said.
According to the AEM data, the demand may indeed continue surging as the U.S. government attempts to stimulate infrastructure work by way of The American Jobs Plan. This work will be made manifest through 2023, and there is presently about $464 billion worth of construction presently in the pipeline, with $742.1 billion in pre-tender, $33.65 billion in tender, and $22.28 billion in the award stage. Meanwhile, some $233 billion in construction work has been delayed due to labor and materials shortages, the report states.