Episode 5: Equipment Outlook for 2022 with Shawn Gerdeman

Between empty pavement lots at dealerships to the scarcity of equipment parts, farmers are facing a “new norm” - shortages and backups with high demand and high prices.

In this episode, hosts Matt Adams and Phil Young chat trends they’re seeing in the agriculture equipment industry, and bring in Shawn Gerdeman, product manager for Unverferth Manufacturing, to get a manufacturing perspective on what farmers have experienced in 2021 and what will be important to them going into 2022.

“Due to supply chain shortages, prices of equipment in all aspects of agriculture are high,” states Shawn. “The customer is going to look for equipment that is going to tailor their needs more than ever.”

Shawn explains that there is one major area where farmers will seek to evolve, and that’s through fertilizer management.

Potash, anhydrous and 28 are all typical fertilizer products that are seeing a per ton price increase. Because of this, farmers are reevaluating how they apply fertilizer and just how much fertilizer they use.

However, Shawn shared that the ag equipment technology sector is seeing pent up demand. Farmers are wanting to invest in technology to apply the right amount of fertilizer in the right areas. Not just to curb the high price of fertilizer, but to manage agriculture’s impact to streams and watersheds. 

“Farmers inherently want to take care of their soil,” says Shawn. “And what better method than to apply only what you need per acre.”

New products being built to properly manage fertilizer, such as dry strip till applicators and applicators that can apply various fertilizer products at variable rates in particular areas of the field, are just two equipment products helping farmers utilize nutrients to the crop’s best potential.

Despite the ramifications of the pandemic, Shawn says there’s one other norm the ag industry as a whole is facing, and that’s asking ourselves, “How are we going to work together to achieve the end goal?”.

Shawn left us with this advice: When you’re a farmer and you have a challenge, you can’t just throw your hands up. “You have to truck through it and find a way around it.”

Here’s a glance at this episode:

• [3:20] Over the last year, ag equipment and other related products have all seen price increases. Because of high fertilizer prices, farmers will seek to use their fertilizer more efficiently and will also be looking for equipment tailored to their needs.
• [4:34] High demand for equipment and inputs results in higher prices.
• [8:12] We’re in a “new age” where shortages and backups are the new norms. Farmers will need to ask themselves, “How are we going to work together to achieve the end goal?”
• [9:36] The ag equipment technology sector is seeing pent-up demand. Farmers are wanting to invest in technology to apply the right amount of fertilizer in the right areas to manage the impact on streams and watersheds.
• [16:37] Equipment auctions and dealers are seeing both high demand and high prices due to supply chain shortages affecting manufacturers.
• [17:19] Farmers seeking new equipment are having to order with an undetermined availability date.
• [18:40] The unavailability of new equipment is driving the used equipment market.
• [20:56] The ag equipment manufacturing industry has evolved from kicking out 300 tractors per day in the early eighties to a build-as-needed basis.
• [21:36] Just like the microchip shortage within the automotive industry, ag equipment technology is seeing the same problem.
• [22:16] Historically, farmers have never had to wonder that if something inevitably breaks, they might not have availability to replacement parts for repair.

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Bios:

Guest Shawn Gerdeman

Shawn is a product manager for Unverferth Manufacturing. He's been with the company for over 20 years and has a passion for farm equipment. He also farms on the side. 

Host Matt Adams

Matt serves Paulding County as an account officer at AgCredit. He has worked in ag lending for over three years and previously worked in farm equipment sales for 11 years. He and his wife farm in northwest Ohio with their two daughters and son. His favorite part about AgCredit is the people. From the member-borrowers to the internal team at AgCredit, every day keeps getting better. Matt hopes to bring insights to ag lending and some laughs to the AgCredit Said It podcast.

Host Phil Young

Phil is an account officer for AgCredit serving Van Wert County. He’s been in ag lending for over three years but his agricultural background goes back much farther. He grew up on his family’s farm where his father raised a large herd of sheep. Currently, he helps with the family farm raising corn, soybeans and wheat. Phil likes working at AgCredit because he can help people achieve their dreams. Whether that is purchasing a new piece of farm ground, updating a piece of equipment, or helping a borrower understand their financials, helping his clients succeed is always his goal.

Transcription

Speaker 1 (00:02):Welcome to AgCredit Said It, the podcast for farm newbies and seasoned professionals alike. In each episode, our hosts sit down with experts from across the agriculture industry to bring you insights, advice and must have information on all things rural living, from farming, to finances and everything in between. Let's get to it.

Matt Adams (00:26):Hey everyone. Welcome back. This is Matt on AgCredit Said It. And today I am with Shawn Gerdeman, product manager for Unverferth Manufacturing. And what we're looking to talk about today is what we're seeing, industry trends. What's going on in industry, supply issues, equipment demand. The big question on everybody's mind always is how has COVID affected everything? Shawn, I'd like to thank you for being part of this with us today. Shawn, just tell us a little bit about Unverferth and what you do for them.

Shawn Gerdeman (00:58):Yeah. Thanks Matt. Thanks for the opportunity. I'm product manager for Unverferth. I've worked for the company for over 20 years. Local, live within 20 miles of the plant. Always had a passion for farm equipment and I farm, as well. It's a nice relationship between doing what I love, farming, and supporting Unverferth which is a fantastic company. Family owned, a lot of good qualities of the company from an employer standpoint and also from a customer standpoint. The customer base we have is very strong. We make a multitude of products from grain handling, seed handling, fertilizer equipment as well that we've added in the last several years. And our goal as a company is satisfied customers, which means if they’re satisfied with one product, they're going to look at us first for another product.

Shawn Gerdeman (01:57):And that's been a very sound business model for us to support our customers, take care of them and provide innovative products that people, like myself that farm, understand how it needs to work and how it needs to perform. And we work together with our team to produce the best products for our customers. And the current demand in the ag industry means we're actively looking for more people to add to our production fleet. We are ever increasing our capacity to be able to meet the demand. And like I said, we did add fertilizer equipment to our venue in the last several years, which means we've really been based in grain handling and tillage, and the fertilizer equipment has really been a good market for us to be in because we've raised the bar on how we're applying the fertilizer, which many customers appreciate because looking at 2022, fertility management is going to separate the men from the boys. $750 a ton potash, $1,000 a ton anhydrous, $500+ a ton 28.

Shawn Gerdeman (03:20):You do the math and you have to use your fertility efficiently, sparingly, in order to survive for next year. 2021, if you had stored grain, it's obvious, when May, June, July markets hit, farmers are able to sell and cash in on high profits with the stored product. Steel prices being at historical highs, it seems like that is not subsiding, which means the customer is going to look for equipment that is going to tailor their needs more than ever, which means unfortunately the prices of equipment in all aspects of ag is high. Whether it be grain bins, tractors, combines, whatever the equipment has gone up 30, 40% in some cases. It's uncontrollable because the price of steel, the price of inputs needs to follow. Obviously we've seen the ramifications of COVID and what that's done to the supply chain, which means prices have to go up.

Shawn Gerdeman (04:34):And what's amazing is how resilient the market truly is because you look at the hurricane that caused some issues on the Mississippi River there in late August, early September and the price of corn really didn't drop much, which means there's a vacuum, there's high demand for the corn. The fuel price, which no one wants to see the price of gas go up but it's reality, which means the ethanol sector is going to be profitable, which means corn basis is going to be very narrow or go to a plus. Obviously that means supply's very current. Looking at the wheat market, $7 wheat means there was a shortage and the wheat belt is looking at how to manage their wheat crop for next year and stare at fertilizer prices accordingly. And how to maximize the high inputs versus you're going to need high prices to compensate for these high inputs.

Matt Adams (05:44):It's kind of what they always say, what does higher prices always get you? Higher prices. It kind of falls its way through the whole industry. Talking about the increase in demand, from your guys' projections is this a big change from what you've looked at? Or is this kind of following historical patterns of, we saw this coming with equipment demand with our customers?

Shawn Gerdeman (06:10):I'm not sure anyone saw the ramifications of what was truly coming with the supply chain being, I don't want to say fragile, but the supply chain being very fragile and when there's a hiccup that happens, it slows quite a few things down. No one wants to see that but it's reality. How to cope with that is some of the day to day challenges that we see at Unverferth and looking at it from a farmer perspective as well is how do you deal with the new age that we're in as shortages, backups? You hear a lot of situations where combine parts right now are just scarce. What's that mean for next year? But we've got a solid foundation of people, got a growing workforce. It's a great, great company. We're out for supplying the best product we can and we don't want to sacrifice the customer experience and providing them the best product we possibly can. And that all means the customer does recognize that, which means we will continue that good demand from an ag sector of our equipment.

Matt Adams (07:32):And I think one thing to note on Unverferth is you guys are not an assembly plant. You guys are in the truest sense a manufacturer. You bring in raw material and out the other end rolls a finished product. Do you see with the supply chain demand on the parts that you do have to bring into the plant, do you see a switch where possibly we will see manufacturing of those inputs move back into maybe the US more and not such a demand overseas? Or is that just kind of still going to be the trend we're looking at just hopefully get the supply chain back in its normal gear?

Shawn Gerdeman (08:12):I think anyone would say, "Hey, if we can buy US made," I think everyone would not turn that situation down. Reality is in the US, there is a labor shortage, which means you have to look elsewhere in other countries to produce the products that we need. But we have a strong network of suppliers and a strong workforce that find ways to work together. And looking at the manufacturing side, if you're a farmer you can equate when you have a challenge, you can't throw your hands up, you have to truck through and find a way around it. Like I described before our podcast with you, Matt, is the new norm is, hey, what is the next challenge? And how are we going to work together to find a way to achieve the end goal? Which is supplying the product to the customer on time, the best we can.

Matt Adams (09:13):And I think staying up on top, it seems in our industry, technology is constantly changing. It's almost what you're producing now to a point, is it almost out of date for what we're looking at for the future? Are we evolving that much as an industry that we have that much new technology always working its way into our equipment side?

Shawn Gerdeman (09:36):That's a fact. We do have rate control technology on our fertilizer products. That sector there is pent up demand from the customer level because customers want to invest in technology in order to manage fertility in a better format. We build anhydrous applicators, we build dry fertilizer applicators, spreaders. We build. We've just introduced a dry strip till applicator machine that totally we're applying two products at once of dry fertilizer into a strip. We kind of poised for the future and maybe the watershed issue that we had in Ohio, back in 20-, I think it was 2013-ish or when that happened, that gave everyone a what's up on what the future held on how to properly handle the fertilizer that we have to use.

Shawn Gerdeman (10:45):What better method is to apply what you need per acre. We took a look at, we can apply two independent products into a strip, how the unit folds, it's called the Raptor, if you want to look it up per se. It folds very narrow and it's all encompassing, one product from our company. We're building the entire unit from ourselves. If you have some type of service issue in the future, you know who you're dealing with. There's not several different products matched up. And even around in Van Wert County, you've seen the transition over the years. Strip till's always been a thing in Van Wert County, how to handle lake bed soils and get the corn in early properly. And I think popcorn in Northwest Ohio was a hot spot for years and popcorn being fairly fragile. How do you get it out of the ground in short order?

Shawn Gerdeman (11:46):And I'll hand my hats off to the veterans in Van Wert County that kind of perfected that strip till and how to use it. But the next stage is how to incorporate the fertility side so that you're applying the right fertilizer in the right area and multiple products, not just throwing a blend together where you can do two products at wants to help maximize your yield and fertility and not over apply so that support this H2Ohio program that a lot of people are actively investing their time into because farmers inherently want to take care of their soil. They inherently do not want to apply extra fertilizer. They're not out to have the potash and the phosphorus go into the streams. And the goal is to apply fertilizer and harvest the crop and get it in the bin.

Shawn Gerdeman (12:47):What better method to do that is get the fertilizer in the ground where you need it and the right application rate and the technology that is out there now with variable rate, fertility maps and how to overlay that all into your farming system. That's what this product is all about. And we're getting a lot of interest throughout the country, not just in Northwest Ohio. And it's a common theme, what I just said about farmer's goal is to use not excessive amounts of fertilizer, to use the right amount for the crop that's coming and looking at the fertilizer prices. That is the vision, use the proper amount at the proper time, get it in the ground so that when the crop is growing, it can utilize it to its best potential.

Matt Adams (13:38):Well, Shawn, I want to thank you very much for being part of us on this today. Any questions, look up Unverferth Manufacturing and thank you very much, sir.

Shawn Gerdeman (13:46):You're very welcome. Sorry about the 4020 in the background but we're starting to unload corn.

Matt Adams (13:50):Yes. Want to mention it to all our listeners that we are live on the farm. What better place to do this at than right in the middle of harvest?

Shawn Gerdeman (13:57):Thank you, Matt.

Matt Adams (13:57):Thank you.

Libby Wixtead (13:59):Speaking of equipment, AgCredit has its own point of sale equipment financing program, Farm Credit EXPRESS. David White, our account manager for Farm Credit EXPRESS is here today to tell us a little more about the program. David, can you give us an overview of the program?

Dave White (14:15):Sure. Farm Credit EXPRESS, as you mentioned, is a point of sale financing program for AgCredit customers and the other 19 associations that participate in Farm Credit EXPRESS. You can actually get the financing for your farm equipment and machinery purchases at the participating dealers and it still counts towards patronage. It's one stop shopping that hopefully will be more efficient and time saving for our customers or new customers of AgCredit.

Libby Wixtead (14:47):How can people find a dealer near them that offers Farm Credit EXPRESS?

Dave White (14:53):Go to farmcreditexpress.com and scroll down and there is a list of dealers. All you have to do is type Ohio in the search engine and all those that serve our territory and most of the farm equipment machinery dealers located in AgCredit's charter territory, do participate in the program. Additionally, as we know of supply and demand issues or supply chain issues created by COVID in the high demand, there's a lot of backup out here on getting new farm equipment machinery or possibly used. If you're also searching for a used piece of equipment, you might want to contact a dealer in another state. That will also be eligible for Farm Credit EXPRESS. It'll get booked back to AgCredit and also be eligible for patronage.

Libby Wixtead (15:40):Can a customer that is outside our territory use Farm Credit EXPRESS?

Dave White (15:45):Absolutely. Any customer located in the United States can use Farm Credit EXPRESS providing the equipment they are purchasing is a participating Farm Credit EXPRESS dealer. The other thing is Farm Credit EXPRESS is actually owned by MidAtlantic Farm Credit out of Eastern Pennsylvania and AgCredit is one of the 20 associations that participates. They set the rates and at times those rates may be somewhat more competitive than what you can get from your local branch. At the same time, they are fixed rates and there are no prepayment penalties or fees if you pay the loan off early.

Libby Wixtead (16:29):This sounds like a great program to use. Thanks for the information. Now, back to Matt with more on the equipment outlook for 2022.

Matt Adams (16:37):Thanks, Libby. I'm here with Phil and we want to talk some on some of the trends we've seen in our area, talking with local equipment dealers and our members. Phil, there's been a ton of equipment auctions here as of late and we're seeing some record prices on pretty much everything across the board, talking to our members. Talking to some of the local dealers, they're seeing high prices on everything. Part of that, that they think is driving is just the demand for one and the availability of new equipment that really is kind of forecasted out for quite a while, just because of the supply issues that the manufacturers are seeing.

Phil Young (17:19):Yeah, I've been driving by our local dealership here and a lot of empty pavement space as far as not much supply out there. There's maybe one or two pieces out there and guys have been calling and wanting stuff but if they want something new, it seems like they're going to have to order it and it's going to have to take six months, even up to a year to get, which is pretty crazy to think about.

Matt Adams (17:43):It is. And I think one thing you look at equipment sales seems to kind of go in trends. Guys are looking for tillage, looking for tractors. Right now, I think they're looking for everything. We did have a pretty wet fall here so I know there's tillages on a lot of guys' minds, maybe looking for that niche piece to fix some damage and some ruts that we did with the combine this fall for next spring. I don't really see things easing up a whole lot. When we look at the availability on the new equipment, especially talking to some of our members that have stuff on order, they're kind of forecasted out, it's, it's undetermined really. I know some guys I've talked to that have had some new equipment on order for the past six months, it's still on order. They still say it's coming. They just cannot give them a timeframe on when that happens.

Matt Adams (18:40):And I think that's what we're going to see to continue driving this used market and just really keeping it strong. And if you look on local auction sites, there is a ton of equipment that's going to be coming up here, I think through the end of the year and then forward on that. Do you think guys are looking at some of that, hey, we had a very good harvest. Is this a tax thing? Are they looking to spend some money before they have to pay Uncle Sam?

Phil Young (19:06):Yeah. The end of the year is typically like that. If you got some extra cash to burn, trying to hide, not trying to hide it but also not wanting to pay Uncle Sam and also trying to just benefit your farm versus having it going to Uncle Sam. I think there's some cash out there. Obviously we've seen it in real estate prices that locally here, real estate's been going pretty high and it's not just the supply side I would say as far as equipment goes, it's the price. There's guys that have gotten equipment quoted six months ago, then when they started kind of just maybe eyeballing stuff, trying to figure out what they wanted, seeing how much stuff costs that maybe got another quote here recently and that price has gone up. Which I would say is not the norm.

Phil Young (19:48):As far as a six month window between getting in quotes and seeing the price increase and there's speculation that right over the tick into January, there's been some rumors that the price increases are going to happen again. It's going to be a pretty significant increase on dealers lots. Again, this is all rumor and some of it could be true and some of it couldn't but that is the rumor mill, I guess, Matt.

Matt Adams (20:11):I think when you look at some of it, especially with John Deere just coming off a recent strike, I know reading in some of the farm sites, they're kind of expecting that to really follow suit and take a price increase just from that. I think with all the other logistics problems and everything, this is kind of that new norm. I think any little hiccup will really fluctuate that price and then with still increased demand.

Phil Young (20:43):Now Matt, your previous job, you worked in equipment sales. I guess has this ever happened before where you've seen such empty lots? And I guess you worked there, how long are you in the equipment business?

Matt Adams (20:56):I was a salesman for Redline Equipment, Case IH, for 11 years. There were some stints where we were based on what we called ourselves order takers, where you couldn't get the product quick enough. Guys had a good year but availability was always there. And now there's a change in the industry to you look back and granted before our time but back in the early eighties, your manufacturers were kicking out 300 tractors a day. You look at it now, it's what they call it's more of a build as needed. Manufacturers do not build to pack the lots full, it's on an as order basis.

Matt Adams (21:36):Part of that kind of controls that supply chain a little bit right there but from my experience, no, I have never seen it like this, especially with just the availability of everything. When you look from parts, filters, a lot of it is electronics. We look at this farm equipment now, they are very advanced computer operated equipment and it's the same chip problem that I think the automotive industry's seeing, that I think that's really fallen into the ag side a little bit. And plus it's just technology, things are changing so quickly. It's kind of keeping up on that latest technology and trying to adapt that quickly.

Phil Young (22:16):Yeah, I know even on our farm, you mentioned parts. Obviously when it's planting season or harvest, you're always praying that nothing breaks, there's nothing you have to repair. Everyone always has that prayer but stuff inevitably breaks. But I think this year, I think a lot of people were really nervous, more so than historically if something broke, if that was going to basically put them out for a week or two or three weeks, just because the part wasn't there. I don't think that's ever been a real issue like to the extent it is today, historically. Would you say that's true as well?

Matt Adams (22:48):Oh, I agree with you a 100%. And you look at it too, especially this harvest, which every harvest is different but this one has definitely been a marathon. It hasn't been a sprint. It is with just the weather conditions we've had here locally in Northwest Ohio. If you're down for say even four days waiting for a part with the interesting weather patterns we've had and everything, that really can throw a wrench into the operation and the flow of things.

Phil Young (23:16):Yeah. Actually I was talking to one of our borrowers. There's an insurance product out there that's a part of their farm insurance, kind of a rider or kind of an add on that they purchased this year specifically. It's basically a policy that allows them to get custom harvest fees paid for by their insurance. Let's say their combine goes down and the part that they need is a month out or is unavailable at the time, this insurance policy will actually pay for someone else to custom harvest the rest of their acres for them if for some reason, their combine would go down. Interesting little insurance tidbit there that's kind of unique to this year I'd say.

Matt Adams (23:55):And it's just another thing I think that's going to help that producer really make sure that bottom line is secure. Phil, looking at it too, from guys you've talked to, we talk about the high equipment prices. Are guys paying cash more or financing more? Because interest rates are still very reasonable when we look at our five year equipment money.

Phil Young (24:20):Yeah. I would say there's a lot of appreciation of used equipment so I think they're thinking if they are trading something in, they're getting top dollar for that trade. And then also I think there is cash out there so some guys are also wanting to throw some more cash to the deal. And so it's kind, I've had a mixed bag of things to be honest. I've had people that want to take advantage of those low rates and then also if there's a trade involved, they're getting top dollar for that trade.

Matt Adams (24:44):Maybe guys, upgrading that equipment while the time is right now, not necessarily need to but kind of a want just because the timing is right and we have the money right now. Well hey Phil, I appreciate it. And this is going to wrap it up for this episode of AgCredit Said It and we look forward to seeing you on the next one.

Speaker 1 (25:05):Thank you for listening to AgCredit Said It. Want to talk ag in between episodes? Follow us on Facebook, Twitter and Instagram @agcredit. For more tips and resources, visit agcredit.net and be sure to subscribe to the show in your favorite podcast player. Catch you next time.