'Our factories are hungry' - U.S. farm machinery maker faces dearth of components

Farmers flush with cash after a run-up in grain prices are clamoring for farm machinery maker AGCO Corp to have them new equipment in time for this year’s harvest.

That is a boom time for the Georgia-based company after years of depressed demand. But AGCO is scrambling to keep up because disruptions all along its supply chain have gone it short of the steel, plastics, microchips and tires it needs to create tractors and combines. A few of its suppliers in the usa and Europe are facing a labor crunch as a result of the coronavirus pandemic.

The supply logjam has hit AGCO, one of the world’s most significant farm machinery makers, just as early spring gets under way in the Northern Hemisphere. The Southern Hemisphere is in the center of its harvesting season. AGCO has already established to tell customers they could have to wait so long as half a year for their machinery - effectively too late for the harvest in the usa, a significant producer of corn and soybeans.

“Our factories are hungry right now,” said Greg Toornman, who oversees AGCO’s global supply chain management.

The farm equipment maker isn't alone. Other farm equipment makers damaged by the supply logjam include Deere & Co, and CNH Industrial.

As the U.S. economy roars back from the pandemic-induced recession, it really is making unusually high orders for parts and materials at a time when inventories are at the cheapest level in decades and the pandemic and weather-related disruptions have gone global supply chains in a mess.

The Institute for Supply Management’s index for new orders in March hit its highest level since January 2004, as the index for order backlogs, among the finest U.S. metrics for how quickly manufacturers are meeting demand, was at the best level in 28 years.

The delays and insufficient needed materials are holding back the pace of economic recovery, translating into inflationary pressure and threatening to weigh on corporate profits. 3M Co, which makes professional adhesives, recently warned that elevated manufacturing and logistics costs could cut its profit this year by as much as 20 cents per share.

For farm machinery companies like AGCO, whose business is highly seasonal, sourcing problems could mean lost sales.

TIGHT INVENTORIES
Lonn Schlueter, an Iowa-based dealer who sells rival equipment maker CNH Industrial’s New Holland tractors and Kinze’s planters, told Reuters he's scouting for used tractors as the orders for new ones are not expected to be delivered prior to the end of the entire year.

“The big problem gets inventory, obtaining the product to market,” Schlueter said. “We are told that the manufacturing is really delayed because they can’t get raw products to complete up the machines.”

Tractor supply in THE UNITED STATES is the tightest in 18 years, according to Jefferies Equity Research. A recently available Morgan Stanley survey of U.S. farm equipment dealers noted concerns about the potential impact of too little inventory on sales.

While dealers of most major farm equipment brands complained of tight inventories, the survey discovered that the situation was worse for all those selling Deere’s equipment.

The Illinois-based company declined to comment. However, in February, Deere told investors it had been facing growing constraints for some electronic components.