Howard Dahl stopped taking farm equipment orders as a shortage of parts and labor and escalating inflation threatened profits for his Fargo, N.D.-based firm Amity Technology. He did so even as high crop prices suggested strong demand for the sugarbeet and silage machinery his company makes ahead of spring planting season.

"Normally we begin selling equipment in early November," Dahl told Reuters. "Largely because of the uncertainty of the supply chain, we limited what we were going to build."

A shortage of raw materials saddled manufacturers with increased costs even before Russia's invasion of Ukraine sent gas prices sky-rocketing and darkened the global inflation outlook, reports Reuters. Now, overall material costs for Dahl have jumped 21% year over year the price of steel has doubled.

Bigger equipment manufacturers are also fighting to protect margins after farmers flush with cash have helped them book record profits over the past year.

Deere & Co said on a recent earnings call it would be pausing advance orders for equipment not already in stock, though it maintains a positive outlook for margin growth. Rival CNH Industrial told Reuters it is following suit.

Farmer income is expected to drop by $5.4 billion from 2021, according to the U.S Department of Agriculture, as federal aid given during the pandemic eases. But tractor sales remained solid in February as farmers eye high crop prices, increasing 9.2% from the same time a year ago, the Association of Equipment Manufacturer's latest report showed.

Still, inflation has companies weighing to what extent they can pass costs on to consumers. As raw material prices continue to rise, companies may need to find alternatives to cushion the impact on big price-tag equipment such as tractors and keep margins intact, analysts say.

For Dahl, miscalculating inflation has proven costly. Now, all cards are on the table to preserve profits.

"We did not raise our prices quickly enough, so we’ve had some profit erosion, said Dahl, who has increased prices by 18% since June. "There's only a couple of components that we're single-sourced on so we're taking a hard look at all alternatives."

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