Back in March, the Federal Reserve Chair Jerome Powell said the central bank was staying on track for 3 interest rate cuts this year. Almost 2 months later, the Fed is changing its tune. 

The latest inflation numbers released May 15 by the Labor Department show prices rose 0.3% from March to April, down slightly from 0.4% the month before. The Associated Press reports that “Measured year-over-year, inflation ticked down from 3.5% to 3.4%. And a measure of underlying inflation, which excludes volatile food and energy costs, also eased in April.”

Powell responded by voiding out his previous suggestion that cuts were likely this year. He said the Fed policymakers need “greater confidence” that inflation is falling to its target level of 2% before reducing borrowing rates, according to the Associated Press. 

In the last year, the Federal Reserve has raised interest rates 11 times, pinging the federal funds rate to a 23-year high of 5.25-5.5%. 

No wonder interest rates once again are the No. 1 concern among farm equipment’s largest machinery dealers. 

Building Pressure

Through the normal verification phone calls that are part of the leg work that goes into compiling the annual Farm Equipment Dealer 100™ list, Farm Equipment editors asked dealer executives for their 5 most pressing concerns. 

You guessed it — interest rates was No. 1. 

It’s a top concern among farmers, too. The latest Ag Economy Barometer from Purdue Univ. and the CME Group concluded that rising interest rates continue to be a key reason producers consider now to be a bad time to make large investments (like machinery). 

Some 34% of respondents cited rising interest rates as THE primary reason, up from 31% the previous month. 

Several weeks back when pending relief was still in sight, an April 2 Farm Equipment Insiders poll revealed that 55.9% of dealers plan to continue with inventory reductions. About 41% say they’ll order as needed to fill inventory holes, but just 2.9% of dealers plan to increase inventory across all categories. 

“Our annual interest expense is up 100% vs. 2023…”

Inventory levels — for both new and used equipment — were in the top 5 for most pressing concerns for big dealers. 

High interest rates and high inventory levels are compounding the challenge for dealers as the floorplan inventory cost continues to eat at the bottom line. 

A net 44% of dealers reported their new equipment inventory levels were too high in the latest Dealer Sentiments report.

One dealer on the Farm Equipment Dealer 100™ told us, “We’re spending $22,000 a day in interest. Our annual interest expense is up 100% vs. 2023.” 

We’ve been hearing for some time that the projected dip in the ag economy won’t be as deep as the previous downturn. Still, now more than ever, it’s critical that dealers refine and bolster the best practices needed for inventory management. 

P.S. I hope to see you Aug. 6-7 in Madison, Wis., for the 2024 Dealership Minds Summit. It’s one of your best opportunities all year to learn from other dealers across North America and of all colors. Register at DealershipMindsSummit.com.