For lovers, we buy silver, gold and platinum. We are drawn to a sparkle. That's why, when precious metals are mentioned, few put steel on the list. But for farm machinery and implement manufacturers, steel is increasingly costly — and, yes, precious.
Prices of hot-rolled steel have risen 66 percent in the last eight months, to nearly $500 a ton in February, according to Greg Ibendahl, an agricultural economist at Mississippi State University in Starkville, Miss.
“There seems to be no end in sight to the higher prices. Steel is now priced at the time of delivery, something that has not happened in three decades. What's more, some suppliers are even charging $800 per ton to guarantee delivery of cold-rolled coils in April, and other mills are making delivery only at the market price in effect when the steel ships. Some other steel mills are levying surcharges and limiting orders,” Ibendahl says.
Dennis Short says the 4-inch by 6-inch rectangular tubing he frequently uses in his Short Line Manufacturing business in Shaw, Miss., has jumped in price from $4 per foot quoted in the last days of 2003 to $6.43 per foot by the end of February.
“I was quoted a price of $5.54 per foot that I thought would be good for the month of February, but when I ordered a bunch of steel tubing Feb. 22 that price was no longer any good. The price for rectangular tubing jumped to $6.43 per foot by the end of February, and has increased a few more times since then,” Short says.
The larger steel tubing Short uses in his business has also substantially increased in price, from $8 per foot in December to $12.22 per foot by the end of February. Blank subsoiler shanks without holes were selling for $144 at the end of the year, and are now selling for more than $200 each.
“I've seen surcharges anywhere between 5 and 11 percent for all kinds of products that have metal in them, and those added fees could still increase,” Short says. “If you sold your product strictly off the iron cost, you'd be looking at a 60 percent price increase over the last few months.”
Buster Jennings, owner of Jennings Welding in Indianola, Miss., says much of the steel used in his business has practically doubled in price over the last six to eight weeks.
“The steel suppliers we talk to say they expect prices to increase a while more and then level off, but nobody is projecting steel prices to drop anytime soon,” Jennings says. “We're trying to keep costs down for farmers, but the fact is that it's costing everybody more.”
For example, he says, a 7-inch by 7-inch square tool bar used frequently on farm implements and planters sold for $17 per foot eight weeks ago, and now it's $24.80 per foot.
Because Jennings doesn't move enough inventory to be able to afford to stockpile a lot of steel products, he says he's ordering what he needs as he needs it. “If somebody needs something I don't have, they just have to wait the few days it takes for me to get it from my suppliers.”
China demand high
According to Ibendahl, much of the blame for higher steel prices is being put on China. “China's steel demand rose 38 million tons last year. This increase is more than the annual steel usage in Mexico and Canada combined, with China now consuming 31 percent of all steel worldwide.”
And, it seems, China is not the only country in need of steel. As the U.S. economy recovers, more American manufacturers are in the market to buy steel, and other countries, such as South Korea, are also seeing increases in demand for the commodity. Add to that the current shortages of the raw material that produces steel and a weak U.S. dollar, and you've got a complete recipe for higher steel prices.
While many of the larger equipment companies are levying across-the-board surcharges that in some cases change daily, Short says he's not “crawfishing” on his quoted prices, and hopes that somewhere down the road his customers will remember that.
“As a farmer I've had it happen to me enough, and as long as I can eat the loss, so to speak, I'm not going back to my farmer-customers and telling them I need more money. We've agreed on a price, and I'm going to do my best to stand by that price,” Short says.