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'Strong fundamentals'

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'Strong fundamentals'

The old Firestone Agricultural Tire Division name will be phased out on Jan. 1 as part of Bridgestone Americas Holding Inc.’s general restructuring. (On that date, the unit will be known as the Agricultural Tire, U.S. & Canada, Commercial Tire Sales division of Bridgestone Americas Tire Operations.)

However, the company’s mission will stay the same, according to Firestone Agricultural Tire Division Vice President Ken Allen, who will become president of Agricultural Tire, U.S. & Canada, Commercial Tire Sales, when the new year rings in.

“We’re really in the transmission of energy business — transmitting energy to the ground,” he says.

In this exclusive interview, Allen discusses the state of the farm tire business, how growing demand for crops in rapidly developing nations will impact tire demand and other subjects.

CTD: What has the ag tire business been like this year?

Allen: Extremely robust. It was stronger than last year. Equipment manufacturers are not seeing any kind of advanced decline or canceling of orders into 2009 at this point. I think the underlying fundamentals are very strong for ag tires. The variables versus last year are input costs, which would be land costs and fuel. This year farmers have higher input costs.

But once again, the fundamentals are strong. The farm debt-to-equity ratio is very favorable — the best it’s been in decades. Farmers also have invested in other equipment beside tractors and tires. They’ve invested in storage. Now that storage is in place, they’re in a position to sit on their crop if prices aren’t favorable. And demand for crops is still high. Farm net income is the leading factor that’s going to affect equipment and parts purchases.

CTD: In response to this, do you have plans to boost your ag tire production?

Allen: We’ve added some production in large capacity radial tires this year and a little bit last year.

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CTD: How do you determine what units go where?

Allen: It’s an evaluation of where equipment is produced and where tires are consumed. Everything’s not rosy in the ag tire industry. There’s a significant amount of ag tire business that is not related to agriculture, or what I refer to as production agriculture. I’m referring to tractors of over 100 horsepower and combines.

If we look at the product category underneath that, compact tractors and utility tractors... that’s equipment supplied to people whose primary income is not from farming. That would be very much tied to the home market — in other words, the housing slump. Those markets aren’t performing very well.

CTD: What impact, if any, is the global economic crisis having on the North American ag tire industry and your company’s business?

Allen: We have not seen a significant change in our supply profile or our demand profile over the last several months. Our expectations going forward are very much the same.

CTD: Looking at 2009, what will the market be like? There has been a lot of volatility in the economy, as we have witnessed over the last couple of months.

Allen: One thing about this volatility is that it has removed a lot of the non-commercial activity from the commodity markets. We’re going back to a situation where it’s commercial buyers and commercial sellers, so we’ll probably find more reality in the market.

With respect to what affects us the most in production agriculture — corn and soybeans — we have growing demand from a global standpoint. We have carry-over from stocks that are precariously low. Any significant weather event in a market like Australia, South America, the Grain Belt of the United States or Europe could throw us into commercial volatility.

CTD: How do you take precautions in anticipation of something like that happening? Is it even possible?

Allen: Precautions are difficult. On a long-term basis, the population is growing in developing countries.

“There will be continued tire demand as affluence grows in those markets.”   ■

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