Mother Nature, politics pummel farm market

AKRON — A cool, soggy spring stifled or delayed the planting season in some regions of the U.S. while elevated import tariffs on commodities disrupted sales for U.S. farmers.

"It created increased anxiety with the farmers, with producers and with even lending people, and then with all the people associated with the farm business, like seed, fertilizer and, of course, tires," Nickalas Phillippi, national product manager, Alliance Tire Americas Inc., said.

"2019 has definitely been a challenging year in the North American agriculture market. Severe weather conditions and heavy moisture in the Midwest from January through May led to a delayed planting season and a large amount of prevent-plant acreage," said Tony Orlando, Firestone Ag president at Bridgestone Americas Inc.

"In addition, a number of trade and fluid market conditions led to high farm product inventory and downward pressure on commodity pricing. All of these factors resulted in lower farm income and a decrease in farmer confidence and spending on equipment," he said.

"Long snowstorms earlier this year led to a very, very wet spring and a lot of flooding across the Midwest especially, and that had a major impact on spring planting. And, of course, the Chinese tariffs have not been helping either to liquidate the huge corn and soybean inventory in the U.S.," CEAT Specialty Tires General Manager Tarang Srivistava said.

Due to the depressed farm economy, there has been a 13% increase since June 2018 of farmers filing for Chapter 12 bankruptcy, according to the American Farm Bureau. States in the Midwest, such as Kansas, Minnesota and Wisconsin, had the highest number of filings.

"The deteriorating financial conditions for farmers and ranchers are a direct When conditions are poor, "farmers typically try to delay expenditures on buying new farm equipment, which means less tires sold to OEMs. And we also see farmers gravitating more toward the value brands because they really want to maximize their dollar," Mr. Srivistava said.

"Therefore, in my opinion, the major brands that are big with OEMs and that are typically more expensive for the farmer, they'll see a sharper downturn in their revenues. The value players, like ourselves, we are actually seeing better sales."

Dave Paulk, manager of field technical services for BKT USA Inc., said several tire dealers have told him they have been getting requests from farmers for used tires as they try to cut costs.

"Everybody is tight-fisted with money it seems," Mr. Paulk said.

"I know a lot of farmers haven't gone out and bought new equipment. Every year you have new equipment, but they haven't bought it in the amounts they generally buy it in, because planting was late and commodity prices are still low," he said, adding, "Whenever they're keeping their old equipment and having to replace tires, that's very good for the aftermarket."

According to the Association of Equipment Manufacturers, U.S. sales of combines plunged nearly 26% while 4-wheel-drive tractor sales fell 4.7% in July, compared with the year-ago period. U.S. sales of 2-wheel-drive tractors and under-40 HP 2-wheel-drive tractors dipped 0.1% and 0.6%, respectively. However, sales of 40-100 HP tractors edged up 4%.

"We have seen that farmers are extending leases on equipment that they had leased or they're holding on to their equipment for another year or two to see how the weather, how the Chinese tariffs, how all these things get settled out before they make any long-term decisions on new equipment," Mr. Phillippi said.

"So I do think that's why OE was impacted. Now on the aftermarket side, that could be seen as good news, because, in many cases, they would put new tires on those tractors and combines and other equipment that they're keeping. They are holding off until they have to, until the last minute. They are looking at value."

As far as expectation for 2020 farm market: "In the farm tire business, like farmers, we have no choice but to be optimistic and hopeful or else we would all go crazy," Mr. Phillippi said.

He said there should be pent-up demand for tires and equipment that will help boost sales next year, but other factors, such as weather, tariffs, oil prices, etc., are out of the industry's control.

"I do think that overall, 2020 has the expectation from us to be a much better year than 2019. A lot of this is based on the decisions farmers are making about keeping equipment and holding on to equipment," he added.

"Putting aside weather and trade, agriculture fundamentals are strong and there likely is pent up demand. In 2020, we do expect to see a recovery of the agriculture economy," Firestone's Mr. Orlando said.

"When we start a year, we always start with the assumption that, agrinomically speaking, it should be a normal year," Mr. Srivistava said, noting that much depends on international markets for corn and soybean, tariff issues and inventory sell down.

"If the global economy slows down, and there are some signs of that, the OEMs will also slow down. And if that happens, then that will exert pressure on the tire manufacturers to manage their production capabilities. ... Time will tell, but for us we are busy introducing new sizes, ... and we will be continuing to release new sizes at the same pace in 2020 as well," Mr. Srivistava said.

He said a slowdown in the OE tire market would be good news "for companies that focus on the replacement market, like ourselves. It would put a lot of pressure on companies that have a much larger share in the OEM side. That invariably puts pressure on the whole industry. There will be excess capacity available which will not be absorbed by the OEMs."

Farmers are trying to increase their income by bolstering crop yields with new technologies. And tire technology is a key component.

Tires for agriculture have become more technologically designed to meet the more sophisticated demands of the modern farmer.

Until about a decade ago, a farmer shopping for tires would simply ask: "Here's my size. What's my price?" according to Mr. Phillippi.

"You didn't talk about tread design as much. You didn't talk about weight capacity. You just didn't have a lot of these detailed conversations," he said. "Today, when they call up and say, 'Here's my size,' the whole conversation moves to: How much roading do you do? What is the weight per axle? What type of soil do you have? What is your primary need and how do you farm?

"You have to get all those answers and be able to say to the farmer, 'Based on your specific tractor, your specific application, your specific field, here's what you need,'" Mr. Phillippi said.

GPS monitoring provides a plethora of information for the farmers, including the types of soil in a given field, to facilitate precision planting and "is now impacting every decision that they make on tires, on fertilizer and watering."

When it comes to investing in high-end tires, farmers' initial tendency is to buy value-priced tires, Mr. Phillippi said.

"But at the same time when dealers and manufacturers are conveying good, solid information and showing the value of the new technology, VF tires being primarily the new technology, and steel belts, ... they're willing to do that as long as they understand what that investment provides."

"I do think the attention paid to compaction has really shifted to be a major topic," Mr. Phillippi noted. "They want maximum traction, they want minimum compaction, and at the same time they want to know that their investment is a good investment that they made. ...

"So everybody is talking more about the footprint that's on the ground, the area that's spread out. That all comes down to air pressure. So I think the next big topic that we're seeing, and it's going to move to a much higher level, is air pressure and on-the-go air pressure management, whether that's central inflation systems that are added to tractors and combines or whether it is something the OEs will start doing more of.

"We are seeing some movement away from the typical R-1 design to enhance the footprint and perform better on hard surfaces and roading because farm tires are being asked to do a lot more roading than they've ever been asked to," he said.

"Back in '60s and '70s a county would have 40 farmers, and now they have four," Mr. Paulk noted. "By and large those four farmers are still farming the same land that 40 did back in the day. So they have to travel between fields, between farms on the highway. The tires are not made to be highway tires, they're made for agriculture. But you have to compound them and build them and design them so they ride good on the road and wear well. ... It's kind of a balancing act," he said.

"Farms are getting larger and the distance between fields is growing, so they are having to put more miles on their tires. Instead of just hours (on the field) that we looked at, now they're actually looking at miles as well," Alliance's Mr. Phillippi said.

"Our efforts to go VF (very high flexion) technology tires, our efforts to put steel in tires, our efforts to look at tread designs that find the sweet spot between road performance, field performance and compaction and traction — that's where all manufacturers are really trying to find that exact sweet spot," Mr. Phillippi said.

There are still a lot of bias tires sold in the U.S. ag market, mostly for small horsepower tractors and implements, but Mr. Phillippi foresees radials taking over the ag market in the not-so-distant future.Radials have many advantages over bias, including in VF designs that can support heavy equipment at lower air pressures (as low as 12 psi) while creating a larger footprint and decreased soil compaction, Mr. Phillippi said.

"We do see in the U.S. a demand for higher rim sizes and we also see that there's a continued demand for bias tires, which is not the case, for example, in the European Union. Their radialization has happened far more than here in the U.S.," observed CEAT's Mr. Srivistava.

"The other trend that we see emerging is VF technology in implements, the smaller tires. That is a phenomena that we would want to watch out for, an area we would like to participate in as well."

CEAT, he said, has been developing two hybrids of ag tires, especially for flotation tires: a field-road hybrid for equipment that drives more on the field and less on the road and a road-field hybrid for equipment that travels more on roads than on fields.