In the ag industry in particular, the convergence of high commodity prices and government stimulus funds combined with years of deferred maintenance and purchases in leaner years, magnified by worldwide raw material shortages, factory shutdowns, shipping delays and labor challenges, attributed to the ongoing COVID-19 pandemic, have left those in the industry facing problems they never could have imagined.

"From production to supplying service parts, the entire industry is feeling these effects," said Scott Harris, Case IH vice president of North America. "The entire value chain from suppliers all the way through end users continues to deal with COVID-related staffing and supply issues. It certainly has brought new challenges for all of us."

Case IH's North American manufacturing facilities have been humming steadily since they got back in line following the initial pandemic outbreak last spring, but keeping the right parts on the assembly line has been difficult.

Harris said there's an ever-changing list of shortages. It was wiring harnesses, then semiconductors. Tires, too, have been a problem. Even as the pandemic situation has gotten more in control in the United States, the supplies still ebb and flow as different regions endure spikes.

"We're looking at dual sources. Can we get them somewhere else? Can we modify something we already have?" Harris said. "We have to expand our options. Normally, we may work with one or two or three suppliers, but we need to expand and find others that will work and deliver a similar result."

For the agricultural industry, lumber prices might be a concern. However, steel supply chain challenges and rising prices are a more urgent challenge, especially for equipment makers. According to most analysts, unprecedented steel demand during the first quarter of 2021 pushed up prices. After bottoming out around $460 per ton last year, U.S. benchmark hot-rolled coil steel prices are now sitting at around $1,500 a ton, a record high that is nearly triple the 20-year average.

Some ag equipment manufacturers have raised concerns over the steel situation. Back in February, John Deere noted steel prices in its corporate outlook for the year. The company said higher farm commodity prices and rising exports, coupled with lower equipment inventories, have boosted the demand for farm machines, with early orders for sprayers, planters, and combines all experiencing double-digit growth. However, John Deere also noted that surging steel prices and elevated freight rates could cost the company $500 million during fiscal 2021.

According to Mike Parriott, the senior vice president of operations for Kinze Manufacturing, the supply crisis of 2021, a combination of a thousand factors, including everything from the global pandemic to the Texas freeze, is something else entirely. "We've never seen anything like it," he said. "We've never seen so many different segments being hammered simultaneously like we've seen this year."

The price of steel has more than tripled on the Iowa manufacturer. Rubber for tires, hoses and belts are difficult to acquire. Plastics are in short supply. It's been difficult to hire new employees. Suppliers have canceled, delayed and shrunk orders without warning. Some, with well-established relationships with Kinze, have even asked the company to stop ordering altogether.

And somehow none of those even count as the big problem. Computer chips and electronics are in such short supply it's their availability that will dictate how much the ag equipment companies are able to produce this year into 2022.

After significant debates among ag equipment manufacturers over recent weeks (an months), most have felt the need to raise their retail prices from 10% - 15%, across the board. These have been unprecedented decisions forced by everything from increased labor costs to supply chain challenges.

The increase doesn't appear to apply to orders dealers had already negotiated and signed with farmers, but everything else will see the jump.

Kinze announced recently that their prices would be bumped by 10% for any new orders received after 6/3/21. "It was an extremely difficult decision to make," Parriott said. "It wasn't one 10-minute meeting. This was multiple very long, very painful, very passionate meetings. These were some of the most passionate conversations I've been a part of at Kinze."

Many markets have been hit with severe product shortages due to supply chain disruptions. Unfortunately, agriculture has not been immune to this phenomenon. Back in the spring 2021 planting season, several ag retailers and their customers were reporting severe shortages of key early season products. This included equipment, parts and other supplies like seed and fertilizer.

For the most part, it seems as if ag retailers were able to keep most of their grower-customers supplied with crop inputs during the spring planting season. However, the market disruptions that led to these shortages in the first place aren’t quite done just yet.

Take, for example, the state of shipping container costs. According to David Schumacher, President/CEO for HELM Agro US, Inc., his company has paid approximately $3,000 per shipping container to get crop protection products from China to the U.S. “for forever.” But as demand for other products from China has increased as the global economy ramps back up, the cost of these shipping containers has steadily rose.

“First, it went up to $7,000 per container,” says Schumacher. “Then, by July, we were paying $16,500 per container. By the fall, we have been told it will cost $20,000 per container.”

In addition to increased transportation costs, U.S. suppliers might also have to deal with the effects of the Olympic games. Although the 2020 Summer Games just ended in Japan back in August, the Winter Olympics are scheduled to take place in February 2022 in Beijing, China — less than five months away. If history is any indicator, says Schumacher, the games could hurt crop protection product production.

“The last time their country had the Olympics, China shut down a lot of factories to improve the air quality, including many chemical manufacturers,” he says. “We think this will happen again and could cause a severe supply disruption for U.S. agriculture as well.”

Given these factors, many market watchers are already warning that crop protection prices will be on the rise for the fall 2021 and spring 2022 seasons. At a minimum, customers should expect to pay 10% to 15% more for their favorite products, with some products increasing by as much as 40% to 50% for the season.

ACROSS THE INDUSTRY

Case IH, John Deere and Kinze are far from alone in feeling a truly unique pinch these last few months. A global crunch of supplies of seemingly every sort has led to shortages in many industries. And like most industries, the only response they can foresee is raising prices to dealers to address these challenges.

"This has been an excruciating period. This should have been a great year," Parriott said. "With high commodity prices, farm income is up, and it should have been an amazing year, and here we have these supply chain challenges and the wild steel prices more than tripling and it's all a bitter pill. It should have been an amazing year, and then we got this crazy stuff."

Visit the sites below for additional information.

Croplife.com: Will Steel Price Hike Impact Ag Equipment Prices in 2021?

Progressive Farmer: Supply Shortage Stings Ag Companies. Price increases Loom as Ag Manufacturers Struggle to Source Parts, Find Labor, by Joel Reichenberger, Sr. Editor