Farmers will soon have to pay more for the agricultural equipment they need to plant, harvest and store their crops.
PIMA Agricultural Manufacturers of Canada said soaring steel costs will be passed on to producers through higher prices for seeders, combines, hopper bins and just about every other piece of equipment used on prairie farms.
“The farmer is going to get it in the wallet,” said PIMA president Jerry Engel.
Manufacturers were blind-sided by notices from steel mills at the beginning of the year announcing surcharges of $25 per ton of steel in January, $55 in February and $45 in March 2004.
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“A lot of my members have just done price lists for 2004 and they’re pulling them back now,” said Engel.
They don’t know how to price their machinery because there is no end in sight to rising steel costs. Engel is concerned farmers are unaware of the magnitude of the problem.
“We want the farmers to know that if the prices go up, it’s not because we’re gouging. We can’t afford to build our product for the same price we used to.”
Agricultural Producers Association of Saskatchewan president Terry Hildebrandt appreciates the heads-up but said farmers are in no financial condition to absorb extra costs. They can’t make up for them by charging more for the wheat and beef they produce.
“That’s the catch-22 that farmers are in. We can’t pass it along to anybody.”
If machinery prices rise, the manufacturers will be the ones feeling the pinch, he warned.
“You’ll see sales drop dramatically.”
The way things are going in the farm economy, there will be lots of used equipment available at auctions, said Hildebrandt.
Peter Warrian, a University of Toronto professor specializing in the steel industry, said sudden and dramatic surcharges have been added to the price of steel, ranging from $25-$95 per ton. A coil of steel from a traditional mill costs 20-25 percent more than it did a year ago.
The price hikes are the direct result of an economic explosion in China, which has seen the country’s steel industry go from “virtually nowhere” to a capacity of 260 million tonnes over the last 20 years.
“It’s bigger than the United States and Japan combined. And then some,” said Warrian.
China’s steel industry relies on scrap metal from products like recycled cars. Its insatiable appetite for the raw material has caused a doubling in scrap prices in the past 15 months.
Warrian said most traditional North American mills use about 15 percent recycled metal in their steel making process, but there are a growing number of “mini-mills” like Regina’s Ipsco Inc. that use 100 percent scrap material.
“They’ve got to have real sweat on their brows.”
Most of the steel used in combines and tractors comes from traditional mills. A coil of steel from those plants sells for $550-$570 per ton on the spot market, up from $450 a year ago. The steel used to make something like a plow blade would likely come from mini-mills, which are under more pressure.
According to Warrian, the price hikes are not a passing phase.
“This problem is going to be around for the next year to 18 months.”
