Twelve months ago, the North American farm tire market was buoyed by robust export demand, high commodity prices and other forces. Those factors are still in play, though perhaps not as strongly, as 2009 winds down.
In this exclusive Commercial Tire Dealer “virtual roundtable,” farm tire executives discuss the present state of the North American farm tire market, how their companies have adjusted to the effects of the ongoing recession, and what 2010 will bring.
Participants include Ken Allen, president, agricultural tire, U.S. and Canada, Commercial Tire Sales, Bridgestone Americas Tire Operations LLC; Bill Dashiell, vice president of product marketing, TBC Wholesale; Bill Haney, sales director, Balkrishna Industries Ltd.; Jeff Jankowski, director of sales, North America, Trelleborg Wheel Systems; Eric Sweigart, vice president of marketing and sales, Michelin North America Inc.; James Tuschner, marketing director, Alliance Tire USA; and Jeff Vasichek, vice president of sales and marketing, Titan International Inc. Here’s what they had to say:
1. The farm tire market in 2008 was extremely robust. What have conditions been like this year?
Allen: Business in 2009 has been what we would call “boom and doom,” all in one business. The sector of ag whose primary income is related to the production of grain is still quite robust. It is at or near 2008 levels. However, the sectors related to milk production and non-primary farm applications such as landscaping and large acreage owners are victims of the general poor conditions of the economy. And other agricultural sectors related to housing, such as timber harvesting, have been under equal duress.Dashiell: Frankly, we struggled a little in the later part of last year and the beginning of 2009 as we completed the resourcing of some of our farm tire products. For the year, farm tire unit sales have been good as a result of these new product lines.
Haney: The farm economy overall has been what I would describe as typical — some good, some bad. The farming goes on, fortunately. Farmers are much more careful with their spending this year.
[PAGEBREAK]Jankowski: In 2009, our business was very good January through July. Our supply on all products was excellent and our dealers were purchasing products for the spring planting season. In August, the market started to slow down. Some of it was seasonal. We felt it the most on the original equipment side. However, it did pick up in September on the replacement side because fall harvesting had started in the U.S. Our order books for November and December look really good.
Sweigart: The inertia of 2008 carried through into 2009 as deliveries of new machines continued their record pace, especially large tractors and combines. Crop commodity prices continued their decline from unprecedented highs, which instilled a more conservative mood across the market. The U.S. ag market is quite cyclical and the downturn of the second half of 2009 is merely a reflection of the economic turbulence that we see across the globe in all sectors.
Tuschner: There was such a great contrast between 2009 and 2008. Last year, OE business was so good and commodity prices were very high. In fact, there was so much OE demand for tires it created, in many cases, extreme shortages for dealers. This year, we’re not seeing shortages, except occasionally for some technical tires or unusual sizes. Commodity prices in 2009 also have settled down relative to 2008. In fact, prices for many commodities showed some decreases, and credit has been tight for dealers, so the market is a lot less dynamic. Dealers and farmers have taken a more cautious approach to purchasing.
Vasichek: Farm tires at both OE and the aftermarket had a very strong first half. OE has softened since July due to the OEMs’ annual shutdowns. The demand for export units has dropped due to the current economic conditions, mainly the tightening of finance. Aftermarket sales have been on par with previous years. Farmers still have good balance sheets and even though grain prices are down from last year’s historic highs, they are still favorable, and the farmer’s input costs (fuel, fertilizer, etc.) have dropped.
2. What impact is the global economic crisis having on the North American farm tire industry and your company’s business? What adjustments have you made, why did you make them, and have they been successful?
Allen: The global economic crisis’ impact, as expected, has affected our export activity and products related to housing and the housing markets. While demand has remained high for production ag products, we have cautiously controlled inventory in other segments by adjusting production schedules. Thus far, we have fortunately been able to do so without permanent layoffs.
Dashiell: Certainly the farm tire industry has seen some effects of the financial difficulties with credit issues, OE farm equipment slowdowns, and falling bio-fuel demand — all resulting in putting recent pressures on commodity prices.
Haney: The global impact actually helped us. We were ready with additional capacity.
Jankowski: There is plenty of supply available for ag products. There has been no question that because of the economy there has been a slowdown in demand. Dealers aren’t buying containers; they’re sitting on units and are buying only the products that are necessary. The OE side has experienced a slowdown globally because of economic conditions. In January and February, we were getting phone calls from our headquarters in Italy saying, “We have plenty of tires.” We’ve cut back on production.
Sweigart: While most economic sectors around the globe have been affected by the current situation, the North American farm industry has been relatively insulated. Planting is near all-time high levels and the weakening of the U.S. dollar relative to many foreign currencies has positioned the farm segment to experience healthy exports. Of course, some of our OE customers have seen reduced market levels for their products, more particularly in export markets, which weighs significantly on North American production. We balance our production capacity to maintain alignment with global demand. As you are aware, in 2008 we exited the value tier of the North American ag market with the cessation of the BFGoodrich brand production of farm tires.
[PAGEBREAK]Tuschner: This year we are feeling the effects of the global economic downturn. However, agriculture isn’t as badly affected as construction or some other segments. Regardless, dealers have been more hesitant to take large stocking positions with inventory. As dealers stock more cautiously, it has helped tremendously to have a North American distribution point: our warehouse in Tennessee.
Vasichek: There has been a decrease in demand at OE due to the crunch in global financing. Many growth areas, such as Eastern Europe — particularly Russia and the Ukraine — had substantial decreases in farm machinery being imported into the region. Some foreign markets put in place tariffs to restrict the equipment coming in; that, in turn, slowed down sales.
3. What will the North American farm tire market be like in 2010? What actions will you take to ensure that your dealers have the right products in the right place at the right time?
Allen: The 2009/2010 crop marketing year has a number of variables that will not be fully realized until later than normal. The crops in 2009 were estimated to be record levels, yet most were late-planted and the early cold could diminish estimates. However, on a long-term basis, grain prices and yields are generous. Without any other influencing factors — such as the value of the dollar — there should be good buying power in production agriculture. The challenge for the supply chain to satisfy the needs of the farmer in 2010 will be inventory and quality of inventory. The entire supply chain — manufacturers, distributors and dealers — has been very aggressive in managing inventory during the economic uncertainties. Any unexpected levels in demand may prove difficult to satisfy on short-term needs.
Dashiell: It’s anyone’s guess on how far the recovery will be in 2010, but the farm tire market will improve with better credit access and improvement in commodity prices.... We are building our inventories and production base to meet our customers’ growing demands for our brand.
Haney: We believe the 2010 farm tire market will be much like 2009. We are working on our 2010 relationships now, and fortunately, we have our own capacity secured.
Jankowski: Dealers are saying they’re going to keep their inventories down. It’s a challenge for us and the dealers to have the right inventory at the right place at the right time. But crop prices are well above where they were three years ago. Farmers are going to make money in 2009 and I anticipate they’ll make money in 2010, as well. But it’s not going to be container, container, container.
Sweigart: There are already positive indicators in both the domestic market and the global OE business. The upswing is expected to be strong and dramatic and we are doing everything we are able to be adequately prepared. We are investing in capacity and improving our supply chain mechanics.
Tuschner: The coming year is anybody’s guess. There are indications that globally, we are seeing some signs of improvement. But regardless of that, this is still going to be a challenging year. On the marketing side, people will probably remain hesitant to take large stocking positions, and on the production side, raw material prices are escalating, which we have to take into account.
Vasichek: Harvest this year has been delayed in many areas due to cold weather and rain. This has delayed combining by more than four weeks and farmers are reaching out to their dealers to have tires in stock during this critical time. We have seen many farmers change over their tires to R-2s to give them added traction in the wet muck.
My recommendation to dealers is to know their markets and the tires their customers’ need. The tire dealer needs to be partnered with their customers. Those dealers who provide 24-hour mobile service to get their customers up and running will be successful. ■