The equal and opposing force to high demand is tight supply. As much as we push for customers to clamor for our products, when we don’t have enough to go around, the fear is they’ll go somewhere else to get them. And while high demand usually brings with it higher prices, having little or no inventory means lost opportunity and price becomes irrelevant.
Since we started our monthly “Ag Equipment Intelligence Dealer Trends & Business Outlook” survey in May of this year, the one common complaint we’ve heard from dealers is that they can’t get enough new equipment or get it in a timely manner to take advantage of the growing demand. And, worse yet, they don’t see this changing any time soon.
On a positive note, in our September report, most dealers reported that the good times for ag continue to roll. Maybe the most positive trend we’re seeing is that it’s not only the grain commodities that are in good shape. Typical comments from dealers include, “We’re primarily in a high dairy sector. With prices holding up, customers are finally replacing equipment that would have been done 2-3 years ago.”
Along that same line, another dealer writes, “Excellent weather during harvest is bringing an above average, high quality crop in. An added bonus is strong prices for all crops. Also cattle prices are improving. The outlook is very promising.”
Another offered, “High hay prices should mean a good year for equipment sales.”
At the same time, many dealers, like many farmers, continue to look for cracks in the wall.
For example, as one dealer points out, while he’s seen a recent uptick in sales revenues, it’s “because of price increases, not entirely because of higher sales.”
On the other hand, another dealer is feeling uneasy about the high unit sales of the past year or so. He says, “We have been oversupplying the market with new equipment. We need to pull back a little bit to keep profit margins from getting below 3%.”
Oh, if we could only have such problems every year.
But the one common complaint we’ve heard from dealers starting more than two years ago is the lack of new equipment availability. A closer look at availability by product category shows that lead times for all four core product categories that we measure are not getting any better. On average combine lead times are about 7 months; 4-wheel drive and row-crop tractors lead times are at least 6 months; and lead times for small tractors (<100 horsepower) are still at 5 months.
High demand has created a short supply and this is worrisome for a lot of dealers.
Comments this month included, “We’re less optimistic as New Holland orders with ETA for December changed to February 2012” … “We can’t get new inventory from Deere” … “Some shortline products are in short supply. Probably all wholegoods will be tight in 2012” … “”We think growth in 2012 will be flat due to lack of new product availability” … “This year, it will be the dealers with inventory that will win out, especially at year-end.”
What may be a predicament for dealers sounds a lot like an opportunity for a manufacturer that’s able and willing to fill the gap in the supply chain. Brand loyalty only goes so far when demand is high and supply is low.