How commodity prices and supply chain issues are affecting our industry

As we prepare for fall harvest, I hope your growing season has been successful thus far. I’m sure you will agree that saying the last year and a half has been challenging is an understatement—a nearly year-long, world-wide pandemic followed now by an acute shortage of almost everything. I appreciate your patience as we work through our used equipment availability issues, back-ordered repair parts and unprecedented demand for new John Deere equipment.

There are two questions I get asked almost daily:

Question 1: How long do you think these high grain prices are going to last?

I don’t have a crystal ball, but the answer to the first question really depends on how long demand for US meat and grains from China will continue. When I look at the various drivers for Chinese demand for our ag products, these are some of the factors I found:

  1. China has 20% of the world’s population, but only 7% of the world’s arable land.
  2. China’s communist party has accepted the fact that their national food security will require them to be a corn and soybean importer well into the future.
  3. The US provides only 16% of the ag product imports that China purchases annually, so China is spreading their ag product purchases around the world and not putting their eggs in one basket.
  4. China’s steadily improving GDP means that every year there is more disposable income available to buy higher protein foods, such as beef.

Bottom line, China has no choice but to keep buying our agricultural products. Given these facts, my prediction is commodity prices will remain strong for the next 3-5 years—barring another black swan event.

Question 2: When do you think the supply chain is going to resolve the parts and equipment availability issues we are experiencing?

To answer the second question—without getting into the politics of how we let key component manufacturing, such as micro-processors (chips), get manufactured everywhere in the world except the US—is a complicated one. If there is one thing that we learned as a result of the pandemic, it’s how important bringing back the production of all key manufacturing components is to our national interests. But, constructing new manufacturing facilities, such as a micro-processer foundry, are expensive and take a couple of years to complete.

The other fact driving inventory shortages of everything from refrigerators to pick-up trucks goes back to the serious supply chain disruptions (mostly labor-related) during the pandemic. Which was then followed by unprecedented demand for these products post-pandemic because consumer savings were at an all-time high since you couldn’t spend money (assuming you had a job) and many of us had generous doses of federal stimulus money burning a hole in our pocket.

So, my answer to the second question is, it’s a complicated mess that’s going to take another 1-2 years to straighten itself out! Personally, I believe it will be early 2023 before things get back to what we remember as NORMAL.

In closing, I want to assure you we are not taking the various inventory issues we are facing, lightly. We will do everything we can to keep you up and running during harvest over the next couple of months.  

May you have a safe and bountiful harvest.

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