Farm tire market: Early spring, dry summer
It all looked great at first. Spring came early in 2012 for many farmers, placing them in a good position. They were planting more acres, the weather was warm and dry, projections were great and farmers were happy.
“Parts of the country experienced unseasonably warm weather early in the year,” says Robyn Conrad, Michelin North America Inc.’s director of ag marketing. “Farmers were really happy because they got into the field early in the year. That’s typically when they would be purchasing tires. They weren’t. They were busy planting.”
Then summer arrived, and with it a drought that gripped much of the country beginning in June. The U.S. Department of Agriculture (USDA) designated 1,297 counties across 29 states as disaster areas.
According to the National Climatic Data Center (NCDC), the United States had the largest drought in 56 years. About 55% of the country was in at least moderate short-term drought in June, when the hot, dry weather ranked as the third-driest month nationally in 118 years.
“It was a large drought, but it didn’t affect all states,” says Bill Haney, sales manager, North America, Balkrishna Industries Ltd. (BKT). “Farming does have certain risks and from year to year there are losses here and there. It’s just part of the business.”
“The significant drought conditions in 2012 had an adverse effect on Midwestern farm land,” says Jeff Hum, regional sales manager at K&M Tire, marketer of Co-Op brand tires. “Yields were down dramatically and this seemed to not only affect farmer sentiment, but took the purchasing wind out of them as well.”
And North America wasn’t the only place that experienced adverse weather in 2012.
“We have a positive outlook overall for the farm tire market even as harvests globally have suffered due to adverse weather in many regions,” says Bill Dashiell, vice president of product marketing for TBC Wholesale Group. “These reduced harvests have driven commodity prices up with the expectation that crop prices will remain high, well into 2013.”
Dashiell says that even with reduced harvests, the overall health of the U.S. agricultural industry still remains good. And that optimism isn’t isolated.
“We heard people comparing 2012 to the devastating drought of 1988, to a horrific dry spell in the 1950s, and even the Dust Bowl days of the ’30s,” says Manny Cicero, president of Alliance Tire Americas. “The remarkable thing is that although crops in some areas were truly devastated, many farmers made it through in fair shape, thanks to great crop genetics and hybrids, some late rains that saved the soybean crop in many areas, crop insurance protection and remarkably high commodity prices.”
The science of plant genetics has been playing a bigger role in the global demand for food. Scientists and geneticists are working hard to develop crops that are stronger, healthier and produce higher yields. But with that comes a challenge for farm tire makers.
“Stubble damage is a challenge,” says BKT’s Haney. “I think the hybrids are becoming tougher. The drought added to the brittle effects of stubble damage this year. I believe this is not an insurmountable problem with our ability to develop rubber compounds and other features. Tire manufacturers should be able to cope with this.”
Hot weather, cool cash
“The significant figure in 2012 is the net farm income; it is one of the highest years on record,” says Haney.
According to the USDA, net farm income in 2012 is forecast to be $122.2 billion. That figure is up 3.7% from 2011’s net farm income of $117.9 billion; in 2010 it was $80.4 billion, $63 billion in 2009 and $85.1 billion in 2008.
The USDA also says that the average annual net farm income from 2002-2011 is $74 billion. Considering that, 2012’s $122.2 billion figure is a significant increase for farmers. Does that extra money mean they’ll spend some of it on tires?
Manufacturers believe that because of delayed purchases and additional farm income, there is now a pent-up demand that will be unleashed in 2013. And due to high crop prices and insurance payouts, farmers will have the funds needed to buy tires.
Most of the manufacturers Modern Tire Dealer spoke with say the replacement ag tire market was down in 2012. However, OE sales are going strong.
“Our ag business is off some when compared to last year’s sales. The replacement market is worse than OE,” says Clark Ent, farm account manager, Specialty Tires of America Inc. (STA), marketers of American Farmer brand tires.
“Our farm business is up year-to-date over 2011,” says Randy Gaetz, vice president of sales and marketing, Del-Nat Tire Corp., which owns the Akuret private brand. “The segment of the market we service is primarily bias-ply ag tires for medium- to low-horsepower machines.”
While only some replacement farm tire makers are enjoying a strong 2012, those with OE business are seeing strong demand.
“The ag market remained strong even through supply issues early in the year,” says TBC’s Dashiell. “Many customers purchased irrigation tires at the end of the season due to industry tight supply the past few years. Our overall farm tire business has increased dramatically with our new expansive product offering.”
Dashiell says TBC has completed the resourcing of its Harvest King product lines. TBC forecasts strong sales with its improved product, ample supply and good pricing.
“The good news is that many farmers dodged a bullet,” says Alliance Tire’s Cicero. “The bad news is that they spent 2012 in fear of losing everything, which put a clamp on spending. Even after the harvest has been weighed and crops are in the bin, farmers have been reticent about spending — partly because they’re not out of the woods in terms of drought until they get fall and winter rains that can carry the ’13 crop at least into summer.”
Cicero says another reason farmers aren’t spending is because crop insurance checks haven’t come in yet for many. As a result, farm tire dealers can expect a cautious customer.
“During the past three or four years, farm tire sales have been robust and demand has steadily exceeded supply,” says K&M’s Hum. “This has enabled many manufacturers to begin a series of global plant expansion projects. Due to the drought conditions and a series of steady price increases, 2012 farm tire sales were slow and forced many retailers to maintain heavy inventories throughout the selling season.”
Hum says he has seen numerous manufacturer price decreases and swelling inventories throughout the supply chain. The soft sales from this past fall will create an influx in demand going into 2013.
“Low interest rates continue to drive new equipment purchases, but many farmers will need to replace tires on some of their two- and three-year-old equipment,” says Hum. “We expect the spring selling season to be very strong and sales to increase as retailers work to sell down their heavy inventories from 2012.”
Radius of radialization
“There’s still a growing demand for radial tires all over North America, even in places such as Mexico which have been very slow to accept radial tires,” says BKT’s Haney. “This trend toward radialization has continued to increase larger sizes on all tires, and higher load capacities on all tires.”
Haney says the radialization trend is being driven by original equipment manufacturers of larger farm equipment. And the trend toward bigger farm equipment is being driven by the need for more efficient farming operations.
“There’s less of a labor pool for agriculture, therefore the industry needs to harvest more crops faster. This requires bigger machines and more power. As the machines get bigger, the ground cannot necessarily accept the high axle loads. This is compensated for with larger and special tires which exert lower ground pressures.”
Haney says soil compaction due to equipment getting larger has been an ongoing issue for 15 years now. That creates new challenges for farm tire manufacturers. “The machines have gotten bigger and bigger and bigger. Tires have to get bigger with them.”
“It’s very clear there is a continuing trend towards more horsepower,” says Bob Rees, Michelin’s North American OE technical manager of ag tires. “There is a continuing trend towards heavier machinery. There is a continuing trend towards higher productivity. We’re seeing higher horsepower equipment being launched from all the OEMs.”
But while equipment gets bigger, the crop rows that ag tires roll between remain the same size. Rees says the North American agricultural business is dominated by the two row crop products — corn and soybeans. Row crops are traditionally grown on a 30-inch row spacing. How do manufacturers make tires that can handle bigger loads without leaving a larger footprint and compacting the soil?
“Three years ago, Michelin introduced the SprayBib, with VF technology that allows 40% less air pressure for the same load,” says Rees.
“If you can reduce the pressure significantly, which the VF technology allows us to do, 40% less pressure for the same load, you can spread that load over a larger area and reduce that effect significantly. The benefit of that is you’re not going to do as much soil damage.”
According to the NCDC, the rain that Hurricane Sandy dumped on the eastern United States brought blizzard conditions to the Central and Southern Appalachians, shattering all-time domestic October monthly and single-storm snowfall records.
“There’s already been snow in the northern middle of the country and this time last year there wasn’t,” says Conrad. “Snow is good for farmers because it will get moisture into the soil, which of course last year, it didn’t. So that’s good news and there are projections that it will be a pretty snowy winter and that will bode well for planting.”
U.S. farmers are in a good position for the 2013 growing season. Because of that, they are going to be more likely to purchase the tires they put off replacing in 2012. That puts farm tire dealers — and wholesalers and manufacturers — in a good position, too. ■
To see the 2012 Farm TIre Market Share Charts, click here.