Farm tires: a bountiful year
It has been a good year to be a farmer. It also has been a good time to sell tires to them. According to the United States Department of Agriculture (USDA), net farm income is forecast to be up 31% at the end of 2011, to $103.6 billion, up $24.5 billion over 2010.
The USDA measures farm sector earnings in three areas: net farm income, net cash income and net value added. All three are forecast to rise more than 20% in 2011.
The USDA also projects net farm income and net cash income to exceed $100 billion for the first time.
“The farm tire market continues to be even more robust than 2010,” said Robyn Fisher Conrad, director of marketing at Michelin North America Inc. “The market tends to trend with farm net income, which is projected to be above 31% versus 2010.”
The USDA expects a 16% increase in sales of crop and livestock at U.S. farm operations in 2011. That projection includes gains spread out among many different categories.
“I can tell you that 2011 has been a strong year for agriculture,” said Andrea Masella, marketing manager Agricultural & Forestry Tires, Trelleborg Wheel Systems Americas Inc. “At Trelleborg, so far we grew our volumes on rear radial replacement by about 80% versus 2009 YTD. This was also due to the introduction of new sizes strategic for the North America market place, and we consolidated our volumes on OE where we expect a small growth by the end of 2011.
On bias tires, our growth in units was above 13% in replacement and above 15% in OE.”
Masella said he believes the strength of 2011 will continue in 2012. He expects another strong year with consistent demand from OE customers, especially in the first quarter.
Feed the world
There’s a big reason farmers are in big demand — hungry people. In October of this year, the world’s seven-billionth (700,000,000,000) person was born.
The demand for efficient, productive farm operations is greater than ever.
“The world population is growing and so will the demand for agricultural products and the price of those,” said Masella. “We are now moving to a complete new agriculture, run by professionals, using professional tools and machinery to achieve these new challenges. The average horsepower of agricultural machinery will keep growing in the future.”
As the numbers continue to roll in for 2011, the farm report continues to look very positive. There are two big reasons farm income has gone up this year — an excellent growing season and high crop yields at harvest time.
“This has been a great year for many crop producers in the U.S. Many farmers are reporting their best harvests ever in the Midwest and West, and commodity prices have been high for months,” said Seth Walters, vice president, marketing and supply chain, Alliance Tire Americas Inc. “It’s been hard, though, for producers in much of the High Plains, where there’s been a terrible drought, and for the livestock producers who have to pay those high commodity prices for feed for their animals. In all though, the farm equipment and farm tire business has been great this year.”
Walters said that farmers have been eager to put some of their crop profits into new equipment, driving OE sales, while replacement sales have also remained strong. Because of this, some manufacturers have been a bit short on supply with certain ag tires over the last year. This has created opportunities for other companies.
“I’d say over the next couple of years, my expectation is that our original equipment business will grow greatly,” said Bill Haney, sales manager, North America, Balkrishna Industries Ltd. (BKT). “All product segments have increased significantly, including construction and OTR. I see a trend where OTR is starting to break loose a little bit, showing signs of creating some demand coming into 2012. Farm is just on a roll and it’s continuing to roll.”
“Farmers will be ending 2011 with money in their pockets and black ink on their balance sheets, ready to invest in new equipment or in making their current machinery as effective as possible coming into next season,” said Walters.
“Weather conditions did create hardships for some areas of the country this past spring,” said Bill Dashiell, vice president of product marketing, TBC Wholesale Group. “But overall, the industry had a strong 2011 season with 2012 looking very good for the ag industry and its suppliers. In 2011 our Harvest King tire shipments improved throughout the year due to strong demand for our products.”
Strong demand and a strong market are reflected in additional numbers from the USDA. The value of the farm sector’s equity (net worth) is forecast to rise 7.7% in 2011. The estimated increase in farm sector equity is largely due to an estimated 7.1% increase in the value of farm business real estate. Farm sector debt is estimated to decrease by 1.9% in 2011.
While the numbers remain good in the U.S., many factors outside the country play a major role in shaping the U.S. farm market.
“The biggest change in 2011 over 2010 is greatly increased net farm income,” said Haney. “I attribute that to global demand for food. Emerging countries are demanding a western style diet — China in particular, but all the Asian countries. If you look at raw materials in mining products, exports are booming. Well, the same is true for food products. We’re exporting big to China and Japan.”
Rubber versus genetics
Science 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.
“Stubble damage is a huge issue with farm tires,” said Tom Rodgers, director of sales and marketing, Bridgestone Americas Tire Operations LLC. “Genetics are improving on all these crops, along with stock quality and standability. There are bigger stalks that hold up bigger ears of corn and that is really impacting tires. When a crop is cut low by the combines, that stubble provides a pretty stiff, piercing stalk that does a good job of deteriorating the tread of the tire.”
Gradual stubble erosion over time is one crop hazard farmers have to worry about. But thanks to genetics and new, tougher crops, another concern today is punctures.
“These stalks can puncture tractor tires,” said Rodgers. “I’ve seen pictures of cornstalks going all the way through a tractor tire. The stalks are that durable. It’s because of the genetics and the seed, where you’re trying to get bigger yields and it just builds a better stalk.”
[PAGEBREAK]Rodgers said that a greater emphasis is being placed on educating farm tire dealers about the hazards of stubble erosion and stalk punctures. There are also new products being developed to tackle the problem.
“There are a lot of products that some smaller companies are developing — they’re calling them stalk stompers or stalk pushers. They basically lay on a combine head and they will push that stalk over so it doesn’t damage the tire. Once you break it off, it doesn’t have the same opportunity to damage the tire as when it’s originally standing up. There are different mechanized ways that people are coming up with, and usually it starts with a farmer getting an idea of how to push that stalk over.”
So while farm tire demand has been strong and new markets are opening up for farm tire makers, new markets are coming into demand to tackle stubble erosion as well.
“We have introduced an American Farmer Stalk Buster implement line to help combat stubble issues in the field,” said Clark Ent, farm account manager, Specialty Tires of America Inc. “We are finding that stubble damage is the number-one tire issue with farmers in the Midwest. We are planning to add more offerings to this line in 2012.”
Stemming the flow
“The challenge is industry capacity — flow,” said Haney. “That is affected by plants — investment and equipment. A lot of companies globally view OTR as the better income opportunity than farm. So a lot of those resources go to OTR production.”
Successful farming operations will continue to create a need for more farm tires. As it does, manufacturers will have to rise to meet the increased demand.
“What’s been an issue for the past couple of years has been the availability of radial rear ag tires,” said Randy Gaetz, vice president of sales and marketing, Del-Nat Tire Corp., marketers of Akuret brand farm tires. “That seems to be getting better. Some of the suppliers have added capacity, which has helped alleviate part of the situation. Our suppliers have increased capacity in the past few months.”
Gaetz said with the horsepower of today’s farm machines and the needs of the tires, there’s a clear distinction between a bias application and a radial one.
“If that’s going to change, it’s going to be OE-trended by the manufacturers putting radial tires on the smaller horsepower machines.”
As OE trends change the farm tire market, it looks like more good years are in the forecast for farmers. Corn and soybean prices are high, and demand has put a lot of revenue in the pockets of farmers. This has created opportunity for farm tire makers to sell tires in two ways. Farm equipment sales are way up and continue to be very strong. That creates demand on the OE side. The replacement market remains extremely strong as well. As farmers continue this trend of success, more of them will be reconditioning existing equipment — and replacing tires.
To see a chart of domestic OE farm tire brand shares for 2011, chick here.