Originally published on Nov. 15, 2021 by TraderStef at CrushTheStreet
There is a lot to unpack about the high demand and bidding wars taking place for used farm tractors and equipment. It is directly linked to fallout from a pandemic that sparked an ongoing supply chain crisis, a semiconductor shortage, high demand for farmland and food, and the rising cost of labor, energy, agricultural products, and fertilizer. I suspect that the majority of folks who read this are not farming professionals, but investing in airable farmland or multi-acre parcels with an existing home is definitely an investment that will help secure your financial and retirement prospects.
Wild Bidding Wars Erupt at Used-Tractor Auctions Across the U.S… “The used tractor business is quickly becoming a crucial marketplace that’s allowing farmers to keep harvesting corn, wheat and soy day and night at a time of insatiable demand from buyers in the U.S. and abroad. With the four-week-old strike at Deere & Co. factories exacerbating an already acute shortage of new tractors, the used market is the only place for many desperate farmers to turn… Peterson, known to all as Machinery Pete, says this is the most frenzied he’s seen the market in his 32-year career. At every single auction he’s attended in the past month, records have been smashed on all kinds of makes, models and vintages… There was this John Deere tractor up for sale at the auction in Keymar. It was old — built in 1998 — but lightly used, having clocked fewer than 1,000 hours, and in pristine condition. The bidding started at $100,000 and quickly shot up to a final sale price of $170,000. That’s $25,000 over the previous record for that specific model (brand-new versions start at $205,000).” – Bloomberg, Nov. 13
The farming business entails the sourcing of numerous supplies that must be available for immediate use, and their expense must remain within budget or you eventually go bankrupt. A tractor is the modern workhorse in the barn that helps maintain the land and keeps planting and harvest season on schedule. If you currently own a modern tractor or are shopping for a new horse, it’s likely filled with semiconductor chips, electronic gadgetry, miscellaneous parts that require regular maintenance or replacement, and tires that are suddenly unavailable with overextended delivery dates. Machinery that’s unavailable for use does not keep the fields planted and harvested on time to generate revenue and pay the bills.
The Global Tractor Microchip Shortage Is Awful and Now Expected to Last Until 2023… “Glenn O’Donnell, a vice president research director at advisory firm Forrester, believes the microchip shortage could last until 2023… ‘Couple that with the unstoppable desire to instrument everything, along with continued growth in cloud computing and cryptocurrency mining, and we see nothing but boom times ahead for chip demand’… Meanwhile, Patrick Armstrong, CIO of Plurimi Investment Managers, told CNBC’s Street Signs Europe last week, that he thinks the chip shortage will last 18 months. It’s not just autos. It’s phones. It’s tractors. It’s car and trucks. It’s the internet of everything. There’re so many goods now that have many more microchips. They’re all internet enabled… Wenzhe Zhao, director of global economies and strategy at Credit Suisse, said the recent microchip shortages have encouraged inventory hoarding along chip production chains, widening the gap between expanding demand and stagnant supply… little can be done to address today’s shortage besides adjusting order books, production schedules, and prices. The news is bad and just doesn’t seem to come with any light at the end of the tunnel.” – Team Tractor Ranch, Jun. 17
Unfinished Tractors, Pickup Trucks Pile Up as Components Run Short… “Manufacturers are stacking up unfinished goods on factory floors and parking incomplete vehicles in airport parking lots while waiting for missing parts, made scarce by supply-chain problems.” – WSJ, Aug. 30
‘Desperate for tires.’ Components shortage roils U.S. harvest… “New Ag Supply in Kansas is pleading with customers to order parts now for spring planting. And in Iowa, farmer Cordt Holub is locking up his machinery inside his barn each night, after thieves stole hard-to-find tractor parts from a local Deere & Co dealership. ‘You try to baby your equipment, but we’re all at the mercy of luck right now,’ said Holub, a fourth-generation corn and soybean farmer in Buckingham, Iowa. Manufacturing meltdowns are hitting the U.S. heartland, as the semiconductor shortages that have plagued equipment makers for months expand into other components. Supply chain woes now pose a threat to the U.S. food supply and farmers’ ability to get crops out of fields.” – Reuters, Oct. 12
Global Chip Shortage ‘Is Far From Over’ as Wait Times Get Longer – WSJ, Oct. 29
Top tech investor Paul Meeks won’t put new money to work in FAANG names, blames chip shortage that could extend through 2023 – CNBC, Nov. 14
The supply shortages and higher cost of agricultural supplies and machinery comes at a time when the industry is stepping deeply into more automation, not less.
How Technology Will Reshape Farm Machinery – AgWeb, Nov. 12
CHART OF THE DAY: Fertilizer Costs Ramping +180% YoY… “The move in Ag was interesting in the sense that something like Wheat ended up being one of the most consensus bearish bets in futures and options terms prior to last week’s +6.3% inflation. Wheat is now up +10.9% in the last month. We never know precisely ‘why’ inflations and/or deflations are happening, but we have written frequently about Fertilizer Costs ramping to +180% year-over-year (last week) driving part of this Ag Inflation move.” – Hedgeye, Nov. 15
Fertilizer shortage expected to send food prices higher… “The energy crunch has made fertilizer too expensive to produce. The world is facing the prospect of a dramatic shortfall in food production as rising energy prices cascade through global agriculture, the CEO of Norwegian fertilizer giant Yara International says. ‘I want to say this loud and clear right now, that we risk a very low crop in the next harvest,’ said Svein Tore Holsether, the CEO and president of the Oslo-based company. ‘I’m afraid we’re going to have a food crisis.” – Fortune, Nov. 4
Fertilizer Prices Rocket to All-Time High on Tightening Supplies… “Fertilizer prices keep soaring to unprecedented heights, signaling escalating costs for farmers and consumers around the world. The Green Markets North American Fertilizer Price Index rose 4.4% to $1,094.35 per short ton on Friday, surpassing a record set a week earlier. Prices for New Orleans urea, a popular nitrogen fertilizer, jumped 8.3% to $812 per short ton as major producer CF Industries Holdings Inc. warned of continued shortages.” – Bloomberg, Nov. 12
It’s no wonder that vintage utility tractors without too many bells and whistles are in high demand with elevated prices. Nothing like a good set of tires and a full tank of gas instead of relying on computing power while in the driver seat.
Utility Tractors For Sale… “John Deere MachineFinder is your source for finding used Utility Tractors. Find dealer information and equipment details.” – MachineFinder
The supply chain crisis is more harmful to farmers than many realize. A dairy farm that is only 60 miles from the nation’s largest container port cannot get its products on a container ship headed for foreign markets that are critical to its business. Similar logistical issues are playing out with farming operations across the country that threaten bankruptcies and real food shortages.
‘People Are Hoarding’: Food Shortages Are The Next Supply-Chain Crunch… “‘said CEO and founder Adnan Durrani. ‘What I think you’ll see over the next six months, all prices will go higher.’ A&W Restaurants earlier this year had to cancel a marketing deal for chicken tenders when its supplier couldn’t get extra stock of poultry. Instead, the chain, which has about 560 locations domestically, went with chili-cheese fries.” – Bloomberg, Oct. 19
Supply-chain crisis, hoarding products spark food shortages across US… “Parts of the US are now battling food shortages as worried Americans have emptied supermarket shelves amid the supply chain crisis threatening the nation’s economy and holiday shopping. People are stockpiling everything from canned goods to boxed items and even making a run on milk when it’s available in grocery stores.” – NYPost, Oct. 20
Crunch at Ports May Mean Crisis for Family Farms… “The company typically ships 50 million pounds of its milk powder and butter out of ports each month. But roughly 60 percent of the company’s bookings on outbound vessels have been canceled or deferred in recent months, resulting in about $45 million in missed revenue per month. ‘This is not just a problem, it’s not just an inconvenience, it’s catastrophic,’ said Brad Anderson, the chief executive of California Dairies… The same congestion at U.S. ports and shortage of truck drivers that has brought the flow of some goods to a halt has also left farmers struggling to get their cargo abroad and fulfill contracts before food supplies go bad. Ships now take weeks, rather than days, to unload at the ports, and backed-up shippers are so desperate to return to Asia to pick up more goods that they often leave the United States with empty containers rather than wait for American farmers to fill them up. The National Milk Producers Federation estimates that shipping disruptions have cost the U.S. dairy industry nearly $1 billion in the first half of the year in terms of higher shipping and inventory costs, lost export volume and price deterioration.” – DNYUZ, Nov. 14
American farmers are paying the price… “The American farm industry exports more than one-fifth of its produce, according to the US Department of Agriculture, and US farm exports have hit record values this year amid a global recovery and a boost from a US-China trade deal. But the ongoing shipping crisis means that a lot of farm goods are not leaving US shores in time, cutting into profits, particularly as inflation drives up input costs from fertilizers to labor.” – Business Insider, Nov. 15
Further reading on the supply chain issues can be found in my articles “Shipping and Supply Chain Crisis Will Not End Anytime Soon” Part 1 & 2, and “A Watch List for Trading the Chip Addiction” Part 1 & 2.
If you don’t have a need for used tractors, farmland is the next best investment option in a world gone mad. Bill Gates was well ahead of the curve when he started buying up farmland. Maybe he knows something we don’t?
Why is Bill Gates investing in farmland?… “Many were speculating about Gates’ motivation for the acquisitions – was it part of his larger sustainability strategy? As it happens, Gates says these investments are, in fact, not connected to climate… Institutional investors are hungry for farmland… The tide began to shift in the early 2000s, when institutional investors began to give farmland a closer look. Momentum accelerated during the 2008-2009 Great Financial Crisis, when investors grew desperate for alternatives to traditional safe haven investments like bonds and gold. In this short period of time, there was a proliferation of funds that were specifically focused on farmland investing. In 2020, there were 166 such funds globally, nearly a 9x increase from only 19 in 2005… Today, Bill Gates owns 242,000 acres of farmland in 19 states. In addition, he owns 25,750 acres of transitional land and 1,234 acres of recreational land for total land holdings of 268,984 acres. His largest holding is in Louisiana (69,071 acres), followed by Arkansas (47,927 acres) and Arizona (25,750 acres).” – AgFunderNews, Aug. 27
Farmland values on a rocket ship in 2021… “‘We’ve seen an explosion in activity and prices,’ says Texas A&M’s Charles Gilliland… ‘Essentially, we’re looking at a tremendous increase in demand for all kinds of land. It’s been nothing short of amazing to watch what’s going on’… His comments can be applied to numerous other states throughout the country as well. For example, despite severe drought conditions on the West Coast, farmland values rose 9% in California and more than 10% in Oregon. A wide swath of states throughout the Midwest – led by Iowa, Kansas, Minnesota, Nebraska, and Wisconsin – witnessed across-the-board increases that in some cases reached double digits. Values also rose substantially in areas as diverse as the Rocky Mountain states of Colorado, Idaho, and Utah, and in Massachusetts and Vermont in the Northeast… ‘Smaller parcels are being bought up by people who want to move out of the bigger cities. That’s a COVID-driven thing,’ says Mykel Taylor with the Auburn University Department of Agricultural Economics and Rural Sociology in Alabama. ‘People didn’t spend their money last year during COVID like they had been, and now they are bidding like crazy on these smaller tracts. That’s bringing up some of the values, even as the average acreage (per sale) is down.’ Some of the biggest gainers in farm real estate values: Massachusetts led the nation with a staggering 21.2% gain; Nebraska gained 11.1%; Kansas rose 10.5%; Oregon gained 10.3%; Vermont increased 9.9%.” – Agriculture.com, Sep. 29
So, there you have it. Despite the pandemic, a global supply chain crisis, geopolitical and domestic unrest, and inflation, farmland is a big deal. Folks will always need to eat and have a safe place to live.
Lara Logan Interview: Rise in energy prices are exacerbating famine issues across the globe – Fox, Nov. 15
Unfortunately, connecting all the dots leads to uneasy conclusions from a veteran war correspondent. Alison Morrow interviewed Michael Yon from the Texas border today. He opined on the wisdom gained from traveling the world and sees the U.S. southern border crisis as another signal for a pandemic/famine war amid the new great migration. Stock up your food and ammo pantry.
Plan Your Trade, Trade Your Plan
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