Farmers invested heavily in new tractors and combines last year but higher production costs could affect their continued appetite for machinery in 2022, experts say.
Unit sales of new tractors over 100 horsepower increased by 24% in 2021, while new four-wheel-drive tractors rose 18% and combines surged by nearly 25%, according to the Association of Equipment Manufacturers.
“Attitudes in the ag economy have been pretty positive,” said Curt Blades, AEM’s senior vice president of industry sectors and product leadership.
The strong demand for farm machinery was partly a “timing issue,” as growers already had crops in the ground before the price of fertilizer and other inputs began soaring, said Michael Langemeier, an agricultural economics professor at Purdue University who tracks farm machinery.
“It was the perfect rolling of the dice in terms of crop net income returns,” he said. The USDA forecast net farm income at about $117 billion in 2021, a 23% increase over the previous year.
While expenses have since climbed, likely eating into farm profits, about 45% of growers in Purdue University’s “ag economy barometer” survey said it was tough to find replacement machinery, Langemeier said.
“Machinery sales would have been higher in 2021 if we hadn’t been going through these supply chain issues,” he said.
Though farm input costs are “sharply on the rise,” machinery manufacturers are optimistic that growers will still want to buy new equipment in 2022, Blades said.
“We’re still in a bit of a replacement market,” he said. “The fleet’s older than it’s been in a while.”
Farmers still have “a lot of working capital” and “some unmet needs,” so 2022 could see a “lingering effect” of elevated demand for machinery, Langemeier said.
According to USDA’s most recent estimate, the composite cost of farm machinery rose 16% year over year.
Higher demand for tractors and combines, as well as manufacturers’ own climbing expenses, will probably exert upward pressure on machinery prices in the coming year, Langemeier said.
“I don’t see how that can taper off in 2022,” he said.
The cost of steel, labor and transportation — three major inputs for manufacturers — have all gotten higher with inflation, Blades said.
“Without question, everything is going up,” he said. “It goes without saying prices will go up.”
However, manufacturers recognize that farming is a relatively low-margin business, he said. “They’re not trying to take additional profits as much as cover their costs.”
Langemeier agreed that manufacturers can’t hike prices for tractors and combines too aggressively without destroying demand.
They’re likely to aim for a sweet spot that will offset some of their rising expenses while minimizing damage to sales, he said.
“They can’t pass all those costs on, but they can pass some of them on,” Langemeier said.
Manufacturers are likewise wary of raising prices due to improvements in engine emissions and efficiency, Blade said.
“It takes money to engineer a product to meet a growing number of regulations, he said.
However, growers can expect that more advanced technology can help them save on fuel and other inputs, which is part of the equation, Blades said.
“What we’re very cautious about is how much the market can bear,” he said.
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