WASHINGTON—The downward trend in farm tire sales is a logical result of the downward trend in farm product prices, according to agricultural economists and tire industry officials. Even with billions of dollars in government aid keeping farm incomes steady, farmers are thinking twice about laying out much in discretionary spending for farm equipment such as tractors and combines, the experts said.
The outlook is somewhat better for replacement farm tires, but these, too, are being purchased strictly on an as-needed basis.
"Planting has not declined," said Daniel A. Sumner, a professor in the Department of Agricultural and Resource Economics at the University of Califor- nia-Davis. "But with prices down, farmers are cautious."
The Rubber Manufacturers Association said the farm sector was the only tire category to drop in 1999—the result of bad weather, low prices, high inventories and weak export demand.
Late last year, the RMA projected a rebound in farm tires through 2001. But Bridgestone/ Firestone Inc. is not so sanguine about the sector's prospects, according to Ralph Burchfield, director of sales and marketing at the company's Firestone Agricultural Tire Co. unit.
"We see some improvement in replacement tires, because older tractors and combines need tires," Mr. Burchfield said. "But in the case of original equipment, we see no significant increase or decrease from last year. And that's a catastrophe for us, because we have all this extra capacity and inventory.
"All of us have pulled back on production, particularly radial," he added. "There's a large amount of radial inventory out there, and we can't do anything about it."
Mr. Burchfield said OE equipment manufacturers have been too guarded with their sales projections this year for Bridgestone/Firestone to make any public estimates for farm tire sales in
2000. In February 1999, however, the company projected OE shipments of 1.19 million, down sharply from 1998 shipments of 1.37 million and 1997 figures of 1.49 million.
In the replacement sector, Bridgestone/Firestone's projections were 2.68 million, up slightly from 1998 shipments of 2.62 million but down from 1997 figures of 2.87 million.
"OE business really fell down—by about 50 percent," said Jim Bamer, Goodyear product manager for farm tires. "Normally, replacement business would take up the slack, but we didn't see that happening in 1999 until the fourth quarter."
In its most recent report on the state of the agricultural industry, the Chicago-based Equipment Manufacturers Institute (EMI) said that "the two-year decline in general farm equipment sales will continue in 2000, but at a lower rate than in previous years."
Large tractor sales will be down slightly this year, but compensated for by an uptick in sales for small tractors and self-propelled combines, the EMI said.
Economists said the reason for the lack of demand from farmers is simple: low prices for their products. "Prices at this point for corn, wheat and soybeans are above the levels of last fall, but still low," said Bill Tomek, professor of agricultural economics at Cornell University.
Cotton farmers face a similar situation, said John McKissick, an agricultural economist at the University of Georgia. "Cotton's had a rally lately, but before that, we've seen the lowest prices in years," he said.
It's been somewhat different for dairy farmers, said Mark Stephenson, senior extension associate in Cornell's Collegiate Program on Dairy Markets and Policy.
"The last three years have been three of the best dairy farmers have been through," Mr. Stephenson said. But dairy prices are going down, he added, because "we simply have too much milk."
The reasons behind the low prices are equally simple, the economists said. The past few years have seen bumper crops, not just in the U.S., but worldwide. Meanwhile, U.S. farmers' traditional export markets in Asia had a slump in demand borne of the economic crisis in those countries.
Oddly enough, farm incomes haven't declined very much, because of government subsidy, loan and other programs, they said.
For example, farm deficiency payments through the U.S. Department of Agriculture's Farm Services Agency have been very helpful to farmers, Mr. Tomek said.
Last year the government paid about $22 billion to U.S. farmers in loan deficiency payments. "With a budget surplus of $1.7 trillion, nobody's going to notice $22 billion," Mr. Tomek said.
However, if a loan program suffers losses, farmers must make up the difference through reductions in their payments. For Georgia peanut farmers, who receive about $600 a ton in support prices, this means a reduction of $30-$40 per ton this year, Mr. McKissick said.
Lower price support payments aren't the only problem Georgia farmers are facing, he added. "Sixty percent of our crops are irrigated, and we're in the midst of a water war with Alabama and Florida," he said. "It's been proposed that they reduce the amount of water supplied to our farmers, to retain the flow in the Flint River Basin."
All the uncertainties farmers face add up to uncertainty in their purchasing patterns, interviewees agreed. The axiom, "Make it do or do without," is as relevant to farmers in 2000 as it was to their great-great-grandfathers.
"Absolutely the No. 1 issue is farm income," Mr. Burchfield said. "When a farmer cuts off spending, he really cuts it off. He doesn't taper off; he quits cold turkey. I was raised on a farm, and I know."
Howard Doster is unusually well qualified to comment on the situation, as both an associate professor of agricultural economics at Purdue University and a working farmer who grows wheat, corn and soybeans on two small farms in Indiana and Ohio.
"Farm machinery lasts a long time, so farmers don't buy machinery when they don't make money," Mr. Doster said.
"We have abundant supplies, and with abundant supplies, no one makes money," he added. "Crops have been good, in the sense that we have quite a build-up of inventory worldwide. But prices will remain depressed until the projections for inventory are significantly reduced."
Drought, improvements in trade or changes in government policy are necessary to achieve inventory reduction, Mr. Doster said. "As a political entity, we haven't decided what to do," he said.
the prospects are for 2000 to be "a break-even year" for corn, wheat and soybeans, Mr. Doster said. To get prices to rise, "what would be needed would be to get rid of some of this stuff," he said.
When farmers are ready to buy equipment and tires again, they'll need them quickly, and farm tire dealers must be ready for the demand, Mr. Burchfield said.
"A lot of our farm tire programs are aimed at helping our dealers to be flexible in a difficult market," he said.