Post boom time?: Bad weather, fuel prices and other factors brought farm tire market down to earth in '06
In the farm tire market, just like other segments of the tire industry, what goes up must come down, and that's certainly what happened during 2006.
"Both 2004 and 2005 were strong years for farm tire sales, both in the original equipment and replacement markets," says Bill Schafer, vice president of marketing and sales, North American agricultural tire, Michelin North America Inc.
Favorable weather, good yields and high crop prices all contributed to strong farm tire sales during that period.
However, 2006 has seen the farm tire market "move back down to a relatively normal level, with decreases in both OE and replacement sales," notes Schafer. What happened? That's the question CTD recently posed to Schafer and several other farm tire manufacturer executives.
Shaul Nuri, marketing and sales manager for Alliance Tire Co., puts part of the blame on unusually high inland freight costs, "which have changed some buying patterns. Another important force was the return to capacity for other tire manufacturers."
Harsh weather conditions in different parts of the country also played a major role, says Jeff Vasichek, vice president of sales and marketing for Titan International Inc.
"We had severe drought in western Iowa and through Nebraska and South Dakota. That (negatively) impacted part of the U.S."
Jeff Wilson, marketing manager for Firestone Agricultural Tire Co. (FATC), says small farm tire sales have fallen "as farmers have faced high input costs."
Both Wilson and Vasichek point to low-cost farm tire imports from offshore manufacturers as contributors to the softening of the small farm tire market.
Michelin's Schafer says it's the confluence of a number of factors, including bad weather, high fuel costs, escalating fertilizer costs and even rising interest rates.
"These factors have impacted the level of net farm income, causing producers to be more cautious with their money."
No more shortage?
CTD also asked farm tire executives to discuss farm tire supply. Last year at this time, there was a noticeable shortage in large farm tires. Fortunately for product-strapped dealers, this appears to be changing.
"Large farm tires are in good supply right now, except for maybe a few key sizes," says Wilson. "OE production slowed in 2006 compared to 2005, and there are key segments in the U.S. replacement market that are down compared to 2005."
"The supply problem was not nearly as extreme as it was last year due to the decrease in demand from the OEMs," says Vasichek.
"You had a couple of things going on last year: John Deere and Case and the other OEMs were running at full capacity. This year, some of the OEMs have taken weeks out of their production. And when OE demand weakens or lessens, there are more tires available for the replacement market."
Rami Bitran, director of sales, agricultural tires, Trelleborg Wheel Systems Americas, goes so far as to say the shortage has "dissipated... most tiremakers have reacted" to last year's supply problems.
Next year's forecast
With 2006 rapidly drawing to a close, execs discussed what they believe the market will be like in 2007.
"We expect the radial market to continue to grow," says Michelin's Schafer. The bias-ply farm tire market is becoming commoditized, he explains. (Michelin only sells radial farm tires in the United States.)
"I would think the market next year on the replacement side will be up," says Vashichek. "I believe with the prices of commodities holding at this time, there will be pent-up demand for tires and services."
FATC's Wilson has a less optimistic outlook. "The U.S. farm tire market will be flat in 2007. OE manufacturers are forecasting conservatively for 2007." And net farm income overall is down, he adds.
Don't discount the government's influence, says Alliance's Nuri. "What will be interesting is the effect of the farm bill debate on the market. If government programs are expected to undergo major changes, it could decrease investment in new equipment.
"But if the farm bill doesn't appear to be due for major changes, it could strengthen farmers' confidence and boost OEM sales. We'll have to wait and see."
Finally, CTD asked how independent farm tire dealers can boost their profitability in their respective marketing areas.
"Provide excellent service," says Wilson. "Have the right inventory of tires in stock when the farmer is ready to buy." He also recommends selling "higher technology" tires that command higher prices and yield better margins.
"I think it's time to start selling quality and performance and not just price -- added value, not just 'black, round and rolling,'" says Bitran.
"The dealers who succeed provide service, a quality product and a value to their customers," says Vasichek. "When a farmer is down, he doesn't care about price. It's no different than in the trucking business; it's all downtime. Farmers want the service and quality to keep them running."