Dealers, manufacturers and farmers alike are adjusting to unprecedented demand for tillage equipment.
Red-hot demand for tillage equipment, fueled by record commodity prices and more corn-on-corn acres, has depleted inventory, boosted wait times for new equipment and caused dealers to adjust sales and marketing tactics to keep customers supplied with new equipment.
"Good commodity prices have put more jingle in the pocket of my customers," says Tom Holm, sales manger for Bruggeman Co. in Sleepy Eye, Minn. "It's definitely helping to sell tillage products."
Bob Campbell, with Bane Equipment in Wingate, Ind., agrees. "Sales have been very good," he says. "Last year's sales were a record for us, and 2008 looks like it'll have the potential for another record."
The hang-up? Availability of new equipment.
Campbell's lot is void of spring tillage and field cultivators, certainly a mainstay of his business. He does have a few vertical tillage tools remaining as he ordered enough last year. "We have a few sitting on the lot, but they'll also be gone soon," he says.
Steven Swartzrock, president of Swartzrock Implement in Charles City, Iowa, says it's not as hard to sell equipment at $5.35 corn as it is $1.65 corn. "So we can't take all the credit," he says.
Good prices are definitely boosting tillage equipment sales, but dealerships must adjust to an increase in demand and tight supplies. Farm Equipment talked with dealers and manufacturers of primary tillage equipment to get their thoughts on the new market, and how each market sector is adjusting.
Bruggeman's Tom Holm says the increase in corn-on-corn acreage has producers looking for specific tillage equipment to handle additional residue. "With corn-on-corn, I see people doing more moldboard plowing to bury stalks," he says. "They're also incorporating chopped stalks with a disc ripper or mulch ripper to get a good soil and residue mix. Producers are looking for machines that can do more in a single pass."
Holm says machines with narrow spacing is what's needed with corn-on-corn. "We sell machines with a 24-inch or 15-inch spacing between the shanks. That spacing, along with aggressive disc action, provides a better soil mix with corn stalks. In a side-by-side comparison, you can see better tillage results behind the machine with narrower spacing."
Holm also stresses that producers are looking for more than just a piece of tillage equipment. "Producers may have more money to spend, but they still want good value."
With the increasing equipment prices that can turn off some buyers, Holm says he needs to convey the return on their investment and also be their source of answers to their questions about tillage, he says.
He's a big believer in getting the equipment on the farm to demonstrate. "If producers can see the results on the farm, that really helps sell the product," he says.
The leadtime for new equipment, however, is something that Holm is stressing to his sales staff and his customers. "If you come in today and want to walk out with a new piece of tillage equipment, it's not likely to happen. If your order for this fall, I need to be sure there's enough lead time to get the equipment before it's needed."
The Balancing Act
Dealerships are balancing demand with the risk of carrying excess inventory.
"We don't want to carry a bunch of inventory," says Campbell. "On the other hand, we can't sell what we don't have. If a piece of equipment isn't sitting on our lot, we won't make a sale. And we can't call on other dealers because supplies are so tight."
So the dealership must make some hard decisions on pre-orders. "We sit down with our sales manager for monthly meetings to openly discuss what we can sell and what we need. We then make an educated guess from those discussions."
For several reasons, Campbell has also seen a rise in the demand for vertical tillage equipment. "Vertical tillage is very efficient from a fuel consumption standpoint. It can cover a lot of acres and not burn a lot of fuel. And it's timely as well. You can run 8-9 mph all day, covering 30-plus acres an hour."
Pre-selling has become an important part of Campbell's marketing strategy. "A lot of the major manufacturers are now focused on pre-selling," he says. "We need to do the same to ensure we get the inventory."
In addition to managing the balancing act of availability vs. excess inventory, it's also critical to explain to customers that they can't sit on the fence and make buying decisions at the last minute and expect to get the equipment. "Producers that are operating on any scale today understand this," Campbell says. "They're buying fertilizer, seed and other inputs much earlier. Machinery is no different. Producers are starting to adapt to that kind of thinking. Seed corn has been that way. Equipment is the next to fall in line."
Best of Times
Swartzrock Implement is enjoying one of its best years for selling tillage equipment in its 50-year history. Swartzrock credits good prices and an increase in corn-on-corn production. "For a lot of producers, there are no shortcuts when planting corn-on-corn. It takes good residue management and, for most producers, that means some form of tillage to prepare the seedbed," he says.
"It's a strange market. We used to sell tractors for $65,000. Now we're selling tillage equipment for $65,000," says Swartzrock.
Much of the demand is for one-pass tillage tools and, like many dealers, Swartzrock is sold out. "It's not simply a matter of getting the equipment," he says. "Our setup people are running flat out. Everything is on a flow chart. We're running very tight."
It's impacted the sales approach for Swartzrock's staff, too. "We need to ensure that the orders come in earlier than they have in the past," he says. "Whatever a producer might need 8 months down the road, he needs to order it today to ensure he receives it on time."
Tight equipment supplies aren't anything new to the agricultural market. However, oversupplies, especially in tillage equipment, became more common and, in the not-so-distant past, led to full lots and lots of choices for dealers. "We've been fortunate that much of our equipment has been pre-sold — we've been preaching pre-sells to our salesmen," Swartzrock says.
However, tight supplies can also lead to the idea that dealers are completely sold out of equipment, thus impacting sales.
"Yes, equipment is tight, and yes, producers may not get what they need right away," Swartzrock says. "But if they order early, they should be able to get what they need."
Trying to Keep Up
Jim Boak, regional sales manager for Salford Farm Machinery, says tillage sales have been strong, although there has been a change in the types of equipment in demand.
"There's a lot less tillage done in the spring, and we're seeing growth in stale seedbed planting," he says. "With higher seed prices, producers need to plant into a perfect seedbed to reduce seed costs. The challenge is to prepare the perfect seedbed with a minimum number of tillage passes. Everybody is striving for one tillage pass. That means one pass in the fall and one pass in the spring."
Big drivers in the reduction of tillage are fuel prices, machinery costs and a shortage of skilled labor. Boak also says that even with the higher cost of tillage equipment, that expense is far less than the increased per acre cost of seed, fertilizer and herbicide. "Machinery costs have been the slowest rising cost in agriculture in the past few years," he says.
And even with increased fuel costs, residue coverage requirements and a movement toward reduced tillage, producers are still using tillage as part of their operation. "Producers need equipment that can do a good job of managing residue and preparing the seedbed," Boak says.
An increase in tillage equipment prices is likely — especially with the huge jump in the price of steel, which has doubled in the past 5 years. And prices could easily double again in the next few years. "Tillage equipment is basically low-tech; most of the cost is in the steel that goes into it. If forecasts hold, tillage equipment prices could rise another 20% in the next couple of years," says Boak.
In spite of increased costs, production lines are running at capacity. "As a company, we're looking at ways to shorten the lead time," he says. "We're expanding and adjusting production methods to get machinery out faster."
Mike Irish, vice president of sales and marketing for Brillion Farm Equipment, says the company has seen an overall increase in demand for tillage tools that will handle corn residue. "Basically, we're dealing with more corn on corn, and producers are having a problem handling the residue," he says. "Stalks don't seem to want to break down unless they get in contact with the soil."
The trend over the past few years has been a demand for tillage tools that will do a good job of cutting up residue, getting residue to the proper size and partially burying it to help it decompose faster. "That's been the biggest challenge," Irish says.
A few years ago, the demand was not that pronounced. However, more corn-on-corn had a lot to do with the recent change. "And producers have a little extra money, so they're upgrading machines they've had for 10 or 15 years to machines that do a better job," Irish says.
Irish agrees that high demand and income hasn't lessened producers' insistence on value. "Producers are also looking for a tool that can adjust to their tillage practices today and in the future — tools that can handle different conditions," Irish says.
Currently, demand is outpacing supply, something that's likely to continue. "We've increased production and there may be time in the May-July time frame where we might see some additional equipment become available. But after August 1, I think everyone will be sold out again," he adds.
Industry-wide, Irish says all manufacturers are in the same boat. "It's good to have this demand, but we're seeing increased steel prices and other higher input costs — we're also keeping in the back of our mind that corn-on-corn may not go on forever."
Irish says manufacturers don't have a lot of excess capacity. And the industry as a whole has for many years adapted to a set number of machines being produced every year. "The hardest thing right now is even if we had more manufacturing capacity, we still have to find the skilled labor to build these machines. The skilled welders and machine operators are just not out there," he says.
Long-range planning is becoming increasingly important to stay on top of the demand for equipment, and keeping the manufacturing line running. "When I started in this business in the 1970s, we had a shortage of machines," Irish says. "Being through a couple of these cycles has helped from a planning side, so we've tried to anticipate our needs."
How long will the strong tillage demand continue? "It's hard to tell right now," he says. "Some experts are saying this market could go on for another 5 to 15 years. I would say at least 3 to 5 years. Robust market conditions like these do not go on forever, economic conditions change and the market will adapt to those changes."
Tried & True Tillage
With overall sales remaining strong at the wholesale and retail level, Keith Whitaker, vice president of sales and marketing at Krause Corp. says the trend in tillage equipment is toward products that can handle high residue. "Even if there's a pause in corn-on-corn, ethanol will still be on producers' minds. So they want a piece of machinery that has the capability to handle what they're doing now and what they'll be doing in the future."
Tillage, according to Whitaker, is still a tried-and-true practice. "Higher commodity prices have increased the priority to increase yield," he says. "With higher input prices, producers also want to minimize the chances of crop failure. If that means addressing compaction or handling residue, they're turning to tillage to minimize the chance of a yield reduction."
Again, hot demand and limited manufacturing capacity are things that dealers are understanding first-hand.
"We are trying to increase capacity and hire additional people, but that's not a fast process," Whitaker says.
Dealers who are focusing on some of the basic principles of the past — demonstrating equipment and pre-selling — are seeing it pay off.
"The dealers following those basic principles will be better suited to the current environment," Whitaker says. "Pre-planning and pre-selling is more of an offensive strategy. Having equipment in stock is a good thing, but it's also more reactionary. In today's market, dealers can't rely on high inventory to make sales."
Krause is working to increase capacity and production of equipment, while maintaining cost controls. "Increasing production must be done carefully and methodically. It's not something you do overnight," Whitaker says. "We're facing a shortage of skilled labor, and a steel market that continues to increase our production costs."
Specialized Approaches Helping Dealers Collect Tillage Orders
With more and more interest in tillage and what a specialized approach can deliver to this hot market, some manufacturers say a new type of dealer is starting to evolve — independents with a singular focus on tillage equipment and nothing else. Described below are two Salford "dealers" who fit this description.
A Systems Approach. Curt Dambman, president of Dambman Service in Milledgeville, Ill., brings Salford RTS units to producers who he believes will benefit from the unit's capabilities. "There's reluctance at first," Dambman says. "So I do a lot of rentals and demonstrations to get the machines on the farm. I usually rent the machine for a day so the producer can get a feel for what the machine can do, because it is a completely different tillage system."
Dambman stresses a systems approach, rather than selling just another piece of farm equipment. "We look at the entire farm and how equipment can fit into a specific operation," he says.
The approach grew from Dambman's previous equipment experience where he could find vertical tillage equipment that worked well on soybean stubble going to corn, but had drawbacks in continuous corn or corn stubble.
"I can show how this equipment works well in all conditions, and how it can replace other tillage equipment on the farm," Dambman says.
"Producers are looking for versatility. If he buys a tool now and modifies his operation down the road, he still wants a tool that will work."
While Dambman must order equipment early in anticipation of sales, he says the leadtime is typically about a year. He relies on customers and word-of-mouth advertising. Earlier this spring, he had a customer come in and write a check for a piece of tillage equipment.
"The guy was watching his neighbor, one of my customers, for 3 years, and then finally pulled the trigger," he says. "As I get more machines out there, I hope to capitalize on more word-of-mouth advertising.
"My customers are my best salesforce," Dambman says. "That comes from the relationship I'm building. I feel that is a big part of my success. I'm building my operation on knowledge of equipment and service of equipment. If they have a question, I'll work to answer it. When it comes time to service, I go above and beyond. That has really promoted the customer recommendations that I get."
From Farmer to Dealer. Harry McCune of McCune Tillage Systems, Walnut, Ill., didn't start out wanting to be a tillage equipment dealer. But after purchasing a vertical tillage system, he saw how the equipment worked and also saw the potential for other producers.
"It was never my aim to sell," McCune says. "But the more I worked with Salford, the more I saw how well this equipment worked."
Now in his fourth year selling, McCune says one of the hardest things is conveying the differences in equipment. "For years, all companies made tillage equipment, and there weren't a lot of drastic changes. I think that lulled a lot of producers into thinking that tillage is tillage."
But once McCune gets the equipment on a farm, producers see the benefits first-hand.
However, it's not a demo program for McCune. "I don't demo," he says. "I only rent out equipment. Rent is a way to qualify my customers. With demos, I end up with a lot of free users who are not really interested."
McCune advertises, but most of his business — a nontraditional one at that — comes from word of mouth. Do producers want to buy this way? "Absolutely," McCune says. "If I can get out on the farm and show how this equipment works, and how it can benefit the producer, they'll buy. I had to be willing to stock some equipment, but it's worked out well."