The availability concerns that shook agriculture from seed to steel in recent years have largely been remedied, top leaders in the industry tell Agri-Pulse, leading to some overcorrections that are producing a glut of supplies in a handful of cases.
As the economy worked to recover from the effects of the COVID-19 pandemic, it was a challenge to get the raw materials needed to make farm equipment and the inputs needed to grow crops. But recent conversations with many industry stakeholders reveal that while that environment has calmed, the issues aren't resolved completely.
“It’s not completely gone, but it’s way, way better than it was a year ago,” AGCO President and CEO Eric Hansotia said of the supply chain woes. In an interview with Agri-Pulse, he said the company was “probably seeing seven or eight issues per machine a year, year-and-a-half ago. Now it's down to one or two.”
That assessment was shared by another farm equipment leader, Kurt Coffey, the vice president of Case IH North America. In a recent conversation with Agri-Pulse, Coffey offered almost identical verbiage to describe Case IH’s state of production challenges – “if before we had eight, nine problems out of 10, I would say we’re back to one, two, or three” – and said the company now has “much more stability.”
Eric Hansotia, AGCO
In a 2022 conversation with Agri-Pulse, Hansotia pointed to a roughly 100-fold increase in the cost of semiconductor chips as a principal concern in the company’s supply chain. Now, he said that factor has “largely subsided.” In cases where the company does face production delays, it’s not due to a single, consistent factor but rather “little things here and there” as the company seeks to satisfy solid demand. Last year’s record $12.7 billion in company-wide revenues are expected to be topped by about $2 billion, AGCO Chief Financial Officer Damon Audia told Agri-Pulse.
As equipment companies report resolved concerns, Syngenta North America seeds head Eric Boeck said the company should be well supplied for the 2024 growing season. Despite dry conditions in several parts of the U.S. Corn Belt, Boeck said the company’s seed supply is “heavily and intensively managed” and will be able to supply the needs of U.S. producers.
“Fortunately, farmers produce our crop for us, and farmers take really good care of that crop,” he said. Even as the company transitioned to supplying new weed-resistance traits in its soybean business, Boeck said Syngenta was able to be a “reliable supplier” of both corn and soybeans.
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Aside from the effects of the pandemic, the invasion of Ukraine also rocked agricultural production systems last year as many companies looked for alternatives to the fertilizers that traditionally were exported through the Black Sea region. In fact, it was those fertilizer shipments and Russia’s frustration with its inability to export at its desired pace that led to the country opting against renewing the Black Sea Grain Initiative, which allowed for the flow of agricultural commodities through Ukrainian ports.
Samuel Taylor, executive director of farm inputs research for Rabobank, says the response to that crisis and other supply chain factors have resulted in “excess inventory” for some fertilizers and other crop protection products.
“If we look at the chemistry side, we've gone like 180 degrees where there were massive concerns of availability of some of the [active ingredients], and now we've got into an environment where we've got almost supply overhang,” he said in an interview with Agri-Pulse.
The time it took to fulfill an order for inventory went from a few months to one year ahead of time for many companies, something Taylor said contributed to a challenge for many companies trying to gauge the cancellations and prices they might face in the upcoming growing season.
“This is kind of, from an economic standpoint, a reverse bullwhip effect,” Taylor said of the “misalignment” of farm input supplies. “We had some over-ordering, some fears and scarcity, which were possibly slightly overblown. It was more of a price than a scarcity kind of dynamic.
“Now the higher cost of carry, with the higher interest rates, has meant that people can't necessarily afford a lot of these kinds of working capital demands,” he added. “So they’ve all been pushing some of this product onto the market deflating a lot of the pricing as well.”
All those factors, Taylor said, point to “one of the most affordable market environments since basically the start of the millennium” for farm inputs. The more reliable supply chains, and the loss of the price shocks those concerns produced in recent memory, should offer “a decent environment for growers.”
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