Surging Steel Markets Will Hurt Farmers

LANSING - Mar 26/04 - MFB -- Farmers looking for ways to steel themselves against inevitable price increases will have to move fast if they're in the market for steel-based products.

"Farmers will really hurt from this," said Michael Niska, general manager at Farmco Distributing, Inc. in Lansing. "Everything that has steel in it has already risen from three% up to 15%, and even our manufacturers are talking about 65% increases on the way. We're telling farmers that the time to buy is right now, because this will only get worse."

Steel suppliers, Niska said, are adding retroactive surcharges to steel ordered months in advance. Supplies are that tight.

"You can see the problem this puts us in," said Doug Arney, Michigan parts sales manager for AGCO Corp. "Normally we would have only one price increase per year, and only in extreme cases like this one would we change prices every six months. That causes real trouble for dealers who have had to change prices every other day. And when they tell a customer that they have to add a 10% surcharge due to steel prices, it irritates them. People hate that. They look at it like they're being ripped off. I think they'd rather accept a higher price on the bottom line than to get surcharges. But dealers don't have much choice but to pass the costs along. Everybody is feeling it from us to John Deere to New Holland."

The overall agriculture economy may not feel the pinch immediately, said Jim Hilker, agricultural economist at Michigan State University, but steel increases will hurt, especially in combination with other price increases.

"If the price really goes up, I'd be more worried about what it does to the overall economy, and then what that does to the farm economy," he said. "Cars, trucks, transportation, all that could suffer, but ag doesn't follow that one per one, necessarily. Prices could put a lid on demand for some things, but people still have to eat. Still, if this would have an impact on the rest of the world, there could be trouble because we need to export if we want to grow."

By itself, Hilker said, increased steel prices might be absorbed by agriculture, especially since commodity prices are up. But when you combine steel price increases with fuel and fertilizer price increases, he said, it could really hurt now and a couple years down the road.

Prices for steel products have been rising for a couple years now, said Ron Kuperus, manager of the group purchasing department at Michigan Farm Bureau.

"We're buying some of the more common things we sell right now to try to hedge against those increases," he said. "We locked in some prices before, but there were still surcharges. For example, we purchased 18 sickle bars and received an $83 steel surcharge."

The reason for the increases, agree several parts and equipment experts, is China's increasing demand for scrap steel used in a major bridge-building project. China also is working on structures for the 2008 Summer Olympics, and continues to purchase much of the world's steel, both scrap and new.

"Scrap steel is selling now for about $170 a ton," said Corey Hyde, Michigan territory manager for the AGCO planter and tillage division. "Under normal conditions, it would sell for about $25 to $35. China's taking all the steel, and that's hurting everybody. For us, it's particularly difficult because almost all our equipment is based on steel. All our frames are built with 3/8-inch steel tubing or heavier, so if we want to keep making products, we're probably just going to have to ride it out and hope prices go back down."

Obviously, Hyde said, equipment sales are sagging right now.

"It's getting serious," he said. "And the frustrating thing is that we have no consistent pricing. If we put in a price increase in the next 30 days, we'll expect another one in 60 days. We try to lock in prices, but they're not holding. It's more profitable for the steel manufacturers to get the surcharge money than it is to honor their contracts."

It's not only the major steel parts such as plow points and equipment frames that will reflect the shortage, said Niska; moving parts for repairs will increase as well.

Copyright (c) 2004 Michigan Farm Bureau

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