AKRON—Predicting the farm economy and subsequent sales of tires for agricultural equipment in 1999 is a tricky business—just like any other year. Whether this will be a good year for farmers—and those who supply them—seems to depend on what they're producing and whether export markets are important.
Farmers who rely on exporting a significant portion of their production—especially those who raise hogs, wheat and soybeans—will continue to battle depressed prices, as economic woes in Asia and other parts of the world have caused export markets to dry up.
But agricultural economists say other producers, such as dairy and vegetable farmers, could have a positive year. Of course, external factors like the weather and foreign competition will influence farm income.
``Wheat is terrible right now. And the outlook for soybeans is not great,'' said Christopher McIntosh, an assistant professor of agricultural economics at the University of Georgia in Athens, Ga. Mr. McIntosh said futures prices for these crops are at historical lows, so farmers will be keeping expenses down—way down.
``While you may see an increase in demand for parts, there will not be many new purchases,'' he said. Mr. McIntosh added that unless there are massive crop failures, an expected bumper crop of soybeans from Argentina will further depress prices in the U.S.
Larry Burt, an extension economist for Oregon State University's agricultural and resource economics department, said the worldwide economic crisis is affecting his state's farmers. ``We're very oriented towards exports,'' he said.
Oregon's farmers export a lot of wheat to Asia, Mr. Burt said, and demand from those markets has fallen in the wake of the Asian economic crisis. But, he said most farmers are holding their own, and dairy farmers in that part of the country are doing well.
Professor Craig Infanger of the University of Kentucky's agricultural economics department said farmers who are not in grain crops, which includes many farmers in the East, are doing OK.
He said that Kentucky's dairy, tobacco and forestry farmers all had positive years in 1998. Corn and broilers (chicken) also were positive products that contributed to a net increase in gross farm receipts in the state last year.
However, farmers who raise crops spend more on tractors and self-propelled farm machinery, including tires, than do livestock farmers, according to the U.S. Department of Agriculture.
The large grain farms of the Midwest depend on mobile equipment like tractors and combines for tilling, planting and harvesting. But, with depressed prices for wheat and other grains, tire dealers and other experts agreed most of these farmers will be trying to extend the life of the tractors and equipment they have now rather than purchase new.
That trend bodes well for sales of replacement farm tires, though sales of farm equipment—and the original equipment tires they ride on—are expected to fall.
``We think the replacement market is going to be extremely strong this year,'' said Mick Lile, co-owner of U.S. Wholesale Tire Inc. in Fulton, Ill. U.S. Wholesale sells and distributes tires in eight Midwestern states. About 35 percent of the company's projected $16 million in sales for 1999 will be in the agricultural sector.
Mr. Lile said that because the grain market is extremely depressed, farmers will decide to spend $4,000 for new tires, ``rather than spend $60,000 to $100,000 on new equipment.'' He said that replacement farm tires will account for a major portion of the 4-year-old company's projected 30-percent growth in overall sales this year.
``If we're wrong, we'll have a lot of tires,'' he said.
In Brawley, Calif., Mike Rodriguez has a positive outlook. ``I think we're going to be a little better,'' said the manager of a Kennedy's for Tires store, one of the chain's four locations in the central part of the state.
Mr. Rodriquez's store is located in the Imperial Valley section of California, where irrigation and year-round farming make this one of the country's leading areas for vegetable production.
About 60 percent of his store's sales are agriculture-related. ``There's a lot of hay farming, and they use smaller tractor tires,'' with an emphasis on bias-ply models, Mr. Rodriguez said.
Kennedy's features Goodyear tires, and Mr. Rodriquez said his store also sells some tires to a nearby Case Corp. implement dealer.
Also positive are Tim and Annette Larrabee, who operate Larrabee's Tire Service, a small, two-bay dealership in Nichols, N.Y.
About 25 percent of Larrabee Tire's $250,000 in annual sales are to farmers in this south-central New York commmunity. Mrs. Larrabee said corn, alfalfa, vegetables and hay are the predominant crops and there are a lot of dairy farms in the area, too.``I don't hear them complaining,'' she said.
The situation is a bit different for Charles R. Potter, owner of Area Wholesale Tire Inc. in Baton Rouge, La., who sees a stagnant farm-tire market for 1999.
``I think the market is soft right now. I think it will be about the same as last year,'' he said.
Area Wholesale sells a lot of small (14-inch) bias tires for carts used in harvesting rice and sugar cane, Mr. Potter said. Farmers in his area don't have large tractors or implements because, ``We don't have a lot of big farms like in the Midwest,'' he said.
The major manufacturers of farm equipment are preparing themselves and their investors for sluggish sales in 1999.
Moline, Ill.-based Deere & Co. projects retail demand in North America for its agricultural products to decline 20 percent in 1999. So, the $14 billion-a-year company will not need as many OE tires to put on its familiar green John Deere tractors and implements.
It's the same story at Case Corp. in Racine, Wis., which has $6 billion in annual sales. Company officials plan to close a plant in Hamilton, Ontario, and will lay off about 3,400 workers worldwide by the end of the year. Case also predicts a decline of 15 to 20 percent in North American agricultural equipment sales for the year.
The Equipment Manufacturers Institute (EMI) in Chicago said there were some precipitous drops in sales of large farm implements in 1998. While total farm tractor sales increased 5.6 percent for the year, sales of tractors with 100-horsepower or larger engines skidded 7.6 percent.
Sales of four-wheel-drive tractors, which had been a hot product, fell by nearly one-half (48.8 percent) in December, compared with the 1997 month, and finished 1998 down almost 30 percent from the previous year.
Another trend with a favorable impact on the replacement market is the move to different types of tires to improve the efficiency of equipment, increase per-acre yields and bump up profits. This includes using new farming methods that require differently constructed tires.
Ray Hudacko, senior sales forecaster for Firestone Agricultural Tire Co., said the trend towards larger equipment and narrower spaces between rows of crops will continue. Declining sales of 38-inch tires and increased sales of tires in the 42- to 46-inch range reflect these trends, he said.
Mr. Hudacko agreed that sales of new farm tractors and implements will be down in 1999, possibly even more than manufacturers like Deere and Case are projecting. But all is not lost: ``We expect some replacement increase,'' he said.
Tires used in the field are exposed to a lot of wear from sunlight, heavy use and the possibility of puncture from plant stubble left after harvesting, creating a relatively constant need for new replacement tires, he said.
The success of dealers who market agricultural tires tends to follow the fortunes of the farmers in their area.
In areas where the farm economy has been hard hit, dealers who carry a diversified array of products still can profit from the booming light-truck, commercial and passenger tire markets, Mr. Lile said.