AKRON (Feb. 12, 2001) — With yet another bad year of low returns on their crops behind them, American farmers are looking to tighten their purse strings further.
That´s a scenario providing both good and bad news for dealers who handle agricultural tires.
Increased crop inventories and unusually weak market prices and returns are the twin culprits impacting the agricultural business, according to the U.S. Department of Agriculture (USDA). Major crop prices for the past two years were at their lowest in 15 to 25 years, depending on the crop.
The USDA noted that one of the ways farmers have compensated for their profit losses is by delaying equipment purchases. Capital equipment expenditures are roughly related to the ups and downs of farm prices, the agency said, noting that spending was down 5 percent in 1999.
"New tractor and new implement sales are down. Farmers are keeping their equipment longer and doing more repairs," said Rick Keller, executive vice president and CEO of the Idaho Farm Bureau. "Tires are not being replaced in a timely fashion. They are cutting back on expenses."
Is there an upside, as far as tire dealers are concerned?
When farmers refrain from buying new tractors and other vehicles, they eventually have to buy replacement tires for their aging equipment. Some dealers also have experienced an increase in tire repairs—an option some farmers have taken to put off new tire purchases.
Roger Anderson, owner of Bair´s Firestone Store in Atlantic, Iowa, said farmers in his market bought a lot of tires last fall and, for him, that foretells of an impending recession. "When business is strong in farm tires, it means farmers are not buying equipment," he explained. "When things are good, farmers buy new equipment and then we don´t see them."
And while depressed times for farmers can translate into higher sales volume for tire dealers, it also can have the adverse effect of cutting into dealers´ profits as these same farmers opt for the lowest-priced tires.
As Tim Wolter, director of marketing-wholesale for T.O. Haas Tire in Lincoln, Neb., observed: "We see people buying `good´ tires in the good-better-best offering." T.O. Haas is a division of Charlotte, N.C.-based Heafner Tire Group Inc.
Likewise, Tom Brawley of Universal Cooperatives in Bloomington, Minn., has seen a downshift in the purchase of quality products. Bias tire customers are looking for used or repaired replacement tires and radial tire customers are downgrading to bias tires, he said.
Another factor affecting tire sales is the extended life of farm tires. David Diehm of Diehm´s Tire Service Inc., Marshall, Mo., said that with the trend toward low-tillage farming, farmers are not running their tractors as much as they used to and, consequently, tires are lasting longer.
"We´ve taken off tires that were 10 to 12 years old," Mr. Diehm said.
When bias tires can last 10 years, farmers see no reason to spend more on radial replacements.
"Why buy a $400 radial tire when you can buy a bias tire for under $200?" Mr. Diehm said, expressing farmers´ reasoning.
Mr. Brawley said that for the past five years farmers have been practicing minimum input farming, such as no-till, ridge-till or limited till. Where farmers used to run their tractors for six passes across the fields, now they only go two to three times, thus cutting the tires´ mileage wear in half. "That has contributed to a slower market," he said.
The continuing trend toward fewer and larger farms can affect dealers´ profits as well.
Whereas a small-scale farmer may buy just two tires at a time, a larger-scale operation may purchase as many as 16 tires at a time.
Large-scale farmers also are becoming more savvy buyers—sometimes divvying a large purchase among several tire dealers. That creates intense price competition among them, T.O. Haas Tire´s Mr. Wolter said, because "the more competitive the sale, the lower the margins."
Across the country, and even within states, some agricultural regions are faring better than others, depending on weather, growing conditions, crop/livestock pricing and government subsidy disbursements.
Terry Bowman, president of Big L Tire Centers in Harrisonburg, Va., is in the heart of turkey farm country, and his business has been thriving this past year.
He attributes the boom to two factors: poultry farmers had a good year and the dealership switched from carrying small brands to Firestone-brand farm tires.
"Firestone is more popular and Firestone has the OE business, so we are getting the replacement tire business from that," Mr. Bowman said. He estimated his farm tires sales—which account for 25 percent of his commercial business—have increased 10 percent since 1999.
The local farm market also has been stable for Diehm´s Tire in Missouri, but Mr. Diehm said that other parts of the state haven´t fared as well.
For T.O. Haas Tire, which distributes farm tires in Nebraska, Kansas and Iowa, business has increased from the previous year. "We have been aggressive in getting more new accounts and expanding geographically to get more market share from other distributors," Mr. Wolter said. The dealership´s warehouses carry a large inventory to meet nearly any tire size request, he added.
For 2001, dealers are guardedly optimistic that conditions will improve. Their predictions mirror those of the USDA.
It forecasts that recovery will occur slowly "but the slow pace suggests that without continued added assistance, farm income in 2001 will fall sharply, debt stress will rise, and we may begin to see a sharper decline in farm numbers than we have seen in recent years," said the USDA´s chief economist, Keith Collins.
But Tom Vetter of Northwest Tire Inc. in Bismark, N.D.—who has seen a downturn in the farm market over the past three years—expects things to improve in 2001 because "it can´t get any worse."
Universal Cooperatives´ Mr. Brawley anticipates a rebound, albeit a slight one, for equipment sales. "(Farmers) have gone two years with really trying to stretch their equipment and at some point they have to replace them."
Wayne Becker of Becker Tire & Treading Co. in Great Bend, Kan., predicts farmers in his market will be pinching pennies this year as far as new equipment purchases are concerned.
If farmers are going to keep their old equipment, "and if they are going to keep farming, they are going to have to replace their tires," he said, adding: "Since, I´m sure, they´re not going to buy new equipment, they have to replace tires, but probably do so grudgingly."
Big L Tire´s Mr. Bowman is more upbeat and optimistic about this year´s sales. "I think it will continue to rise," he said. "We are taking steps to be more aggressive in that market. We´ve increased our service personnel 10 percent to handle service calls."
Mr. Brawley advised tire dealers to continue or increase the service they provide. Since farmers are running their equipment and tires longer, they will have to have them serviced.
"As farmers become more economically productive, service becomes a big issue," he said. "Dealers will have to have tires on hand that they need and have service available when they need it."
Some dealers already have been actively taking steps to offset the losses in the farm tire market.
For example, more than half of Tucker Tire Co. Inc.´s business in Dyersburg, Tenn., is tied to farm tires. To offset the depressed farm market conditions, owner J.R. Tucker said he´s "changing my business so I´m not so farm oriented."
Last year he set up a Web page to sell mail-order lawn and garden tires. He also began vulcanizing repair operations and selling used tires to farmers reluctant to buy new tires.
"We´ll focus on this until things get better," Mr. Tucker said. "We´re working to offset (the slump) by expanding our business and outreach through the Internet."
Bair´s Firestone in Iowa is a small business that has serviced the farm market for 30 years and that service includes going into the fields in inclement weather on evenings and weekends to repair tractors and tires.
"Service is the key to farm tires," said Bair´s Mr. Anderson. "If you are willing to go out after hours and keep them rolling, they´ll remember you for that."
Mr. Anderson has seen several small dealerships get out of the farm service business because they couldn´t afford to buy new service trucks. While that has meant more business for Bair´s, it also means more cost to the dealership as its service trucks travel farther. "There was one day when our service truck was in seven different counties on calls," he said.
Farm tire sales account for about 40 percent of Bair´s tire sales, but the dealership has had to increase its retail business to bolster its profits.
"There are fewer farmers out there and they do farming so fast—a few weeks in the spring and fall—that servicing them doesn´t cover our expenses. So we had to expand our service business," Mr. Anderson said.
The company has bolstered its vehicle service offering to include everything but bodywork and has added certified mechanics.
"At this point, we are cautiously optimistic in that we may do as good as last year," said T.O. Haas Tire´s Mr. Wolter.
His company plans to increase promotional efforts and creative marketing and encourage its dealers to host sales events for farmers in an effort to entice them to buy their brands.
But the dealership also is putting emphasis on other more upbeat markets, such as the construction business, in an attempt to supplement its overall revenue, he said.
Becker Tire, which distributes tires mostly in farming communities, has been trying to cut its inventory and operate more efficiently. The wholesale/retail dealership has experienced growth every year, Mr. Becker said. But profit-wise, the June 2000-2001 fiscal year has not been good so far.
Meanwhile, at Northwest Tire, farm tire sales—which used to account for 30 percent of the Bismarck, N.D., dealership´s sales—have fallen to 10 percent as the company shifted its marketing focus to other products, such as passenger and light truck tires and retreading.
During the past few years, the dealership has put stores and warehouses in larger markets, a move that has helped increase business, Mr. Vetter said.