Ag tire sales growing despite falling farm income

AKRON — Farm tire sales are expected to experience moderate growth this year, despite a struggling agricultural market where farm income shrunk last year.

The ag replacement and OE tire market fared well in 2018, according to David Graden, operational marketing manager – agriculture, Michelin North America.

"In the replacement market, we are still expecting growth. Previews of 2019 give us a positive outlook. At this time, corn prices look like they will improve and level off. Farmer income will remain low, but this usually has a positive impact on replacement market," Mr. Graden said. "For OE, we expect continual growth throughout 2019. At this time, we are expecting greater growth than we will see in the replacement market, despite some of the major issues impacting the ag market."

The agriculture tire market showed some signs of growth in 2018 but was on "shaky ground" leading into 2019, according to James Crouch, national product manager, agriculture, Alliance Tire Americas Inc. (ATA).

"The aftermarket was tight, but we are starting to see life in the used tractor market and some large row crop equipment that was purchased during the boom of 2010-2012 is starting to come due for replacement tires," Mr. Crouch said.

"Low but steady commodity prices and concerns on global market access for crop sales has the professional farmer conservative on spending unnecessary money. The OE market started to show signs of life but mostly in smaller compact utility equipment. This CU customer seems to be disconnected from the concerns that keep the professional farmer from purchasing new equipment."

ATA expects a slightly positive year ahead for both the OE tire market and the aftermarket.

"Although commodity prices will likely remain flat, people are still at a point of needing replacement tires and some new equipment," Mr. Crouch said.

Dave Paulk, manager of field technical services, agriculture, for BKT USA Inc., expects the farm replacement tire market to be flat or slightly up in 2019.

"We would expect it to be flat or slightly down for OE based on production of new equipment, which is growing at a low rate. Generally, when OE sales are down, replacement is up," he said.

Equipment sales

2018 was a strong year for ag tractor and combine sales in the U.S., according to the Association of Equipment Manufacturers' (AEM) market data.

"2018 was a solid year for equipment sales despite a weak overall farm economy and lingering trade issues," said Curt Blades, AEM senior vice president of agriculture. "As we look at 2019, we're still seeing a lot of uncertainty related to the Administration's efforts to reset global trade parameters. We're also watching some uncertainty with stock market ups and downs, which could indicate a potential slowing economy. As a whole, we remain optimistic that the replacement market for large equipment will continue through 2019, and that the small tractor market will continue to be a bright spot on overall sales numbers."

According to AEM's latest report of U.S. December 2018 year-to-date sales:

• Self-propelled combines jumped more than 18 percent;
• 4-wheel-drive tractors increased nearly 13 percent;
• 2-wheel-drive tractors climbed 6.8 percent;
• Under-40 HP tractors grew 9.2 percent;
• 40-100 HP tractor sales edged up 1.5 percent; and
• 100-plus HP tractors rose 5.5 percent.

Meanwhile, Canadian retail sales of tractors and combines saw less consistent results in 2018. December year-to-date sales of all farm tractors edged up 1.7 percent, but year-to-date sales of 4-wheel-drive tractors fell more than 13 percent; self-propelled combines dropped 4 percent; and 40-100 HP tractor sales declined by a little more than 3 percent.

Major issues

There are several factors that will affect farmers early this year, according to BKT's Mr. Paulk:

• The $12-billion-bailout package approved by Congress has been delayed by the recent government shutdown. It was supposed to have been done by Jan. 15 but will have to be extended. This was a package designed to help farmers because of the trade wars.
• Farm price subsidies have not been paid because of the shutdown. They will be paid eventually, but farmers are having to borrow money to farm this year and will have to make interest payments.
• Commodity prices for corn and soybeans have been low this past year and have suppressed farm income.
• "The hurricane in October in the south basically wiped out the cotton and other crops in South Carolina, Georgia and Alabama. When the market is like this, generally they don't buy new equipment and have to buy tires for their older equipment. Unless something major happens, I don't see the market getting any better until the trade wars are over," Mr. Paulk said.
• Tires are trending more to IF (increased flexion) and VF (very high flexion) technology as farm equipment and implements are getting heavier.
• As farms take over more fields at scattered locations, farm equipment tires must be designed to travel on roads between fields.

The major issue for the professional farmer right now is global market access for their crops, noted ATA's Mr. Crouch.

"Trade issues cause uncertainty and uncertainty stifles markets. It's an interesting time right now because farmers have limited influence when it comes to improving the value of their product. 2018 saw bumper crops across the country, which led to an excess of crops available for sale and consequently driving down prices. Farmers who are closely monitoring their stores right now are doing some hard math on what to plant this year and how much."

Mr. Crouch said that ATA, along with its parent Yokohama Tire Corp., is offering "the best return on investment possible to our farm customers, while also offering very competitive prices. We have invested significant resources in expanding our low-pressure tire line, which maximizes efficiency and gives farmers the best performance for their money. We have also enhanced our warranty to cover our premium ag tires for up to a decade. Standing by the quality of our product with the new warranty is ATG's way of offering a safety net to the customers who choose to buy or switch over to our premium Alliance farm tires."

Michelin's Mr. Graden also noted there are many more ag tire manufacturers in the North American market than ever before.

"The pie is relatively the same size but it is divided into more pieces. For Michelin, we have been successful in maintaining our market share," he said, adding that Michelin is launching more products and size extensions in 2019.

"These products were developed with the customer in mind and bring solutions and improved efficiency to the market. For example, while corn prices have been at their lowest, we have tested, proven and introduced ag tire solutions to increase yield by 4-percent-plus and save up to 10 percent in fuel."

BKT said it works with its distributors to ensure that they are stocking the right tires and enough products.

"We are always gauging the market to be aware of trends to develop new tires and technology to keep up with the many market changes," Mr. Paulk said.

Tire trends

 "One of the big things you're going to see evolving more and more is there is a standard tire and then there is an IF and a VF," BKT's Mr. Paulk said. "We're going to see more and more tires start going to the IF and probably to the VF version."

IF carries 20-percent more weight at the same pressure as a standard tire, while VF will carry 40-percent more weight, he said. Farmers can reduce the air pressure in these tires to carry the same weight as a standard tire, which helps reduce the ground-bearing pressure and thus reduce soil compaction.

He noted that as in other tire segments, the OEMs are the ones driving this trend to IF and VF tires with development of larger and heavier farm equipment.

"The market turnaround brought about by aging agricultural machinery and growing emphasis on sustainable agricultural practices for tackling food security continue to influence demand for farm tires worldwide," according to Fact.MR's global market insights report for 2018-2028.

"Although few farmers still try to squeeze extra work out of their old tractors, a major chunk of the customer base is eyeing to capitalize on benefits offered by the up-to-date machinery. This further has a great influence on demand for farm tires."

Another key demand determinant of farm tires is attractive subsidies offered by governments that are promoting purchases of new machinery and equipment by farmers.

The report predicts 6-percent growth in the global farm tire market between 2018 and 2028.

"Agricultural machinery and equipment manufacturers continue to develop heavier, more powerful and huge tractors and other machinery, thereby creating avenues for increased flexion (IF), very high flexion (VF), and low sidewall (LSW) technology-based farm tires," the report said.

"Compounding employed in farm tires, tread pattern, and structure are likely to be key areas of design innovations among farm tire manufacturers. Along with improvements in weight-carrying capacity, recent crop science advancements have led toward genetically modified organism (GMO) crops, which are tougher and heartier than previous plant generations. Meanwhile, farm tire makers are seeking new compounds that hold potential in improving stubble resistance and reducing the tendency for sidewall cracks, which in turn will lure affluent farmers to bank on the imminent new products."

Over the past couple of years, a majority of tire manufacturers have jumped on the IF, VF and LSW bandwagons, Fact.MR said, developing their own versions of tires with flexible sidewalls, which promise lower soil compaction and greater load-carrying capacity.

"Current generation of farm tires carry relatively more weight and are sturdy and resilient in fields against steel and rubber belt-piercing stalks of GMO crops. High performance of these tires on roads at greater speeds for longer distances have augmented their demand among farmers worldwide," the report said. "Lower-pressure tires that produce a larger tire footprint are receiving higher preference, as they distribute weight of the tractors and other agriculture machinery over the largest possible area for reducing soil compaction."

Farm economy

"While the U.S. economy roars along, the farm economy continues to struggle," the American Farm Bureau Federation reported.

After adjusting for inflation, net farm income in 2018 was projected to decrease 14.1 percent from 2017 levels, making it the third-lowest level over the last two decades, behind 2002 and 2016.

The decline in farm profitability reflects lower commodity cash receipts in some categories, i.e., soybeans and dairy, but also higher cash receipts in other categories, such as corn or poultry.

The outlook going into 2019 remains uncertain, according to the farm bureau.

However, the bureau praised the recently passed 2018 federal farm bill, which provided, among other policies, crop insurance, research, renewable energy and new foreign market access. Without a farm bill in place, "it's very difficult for farmers to secure the credit they need to plant crops, buy fuel and repair and invest in equipment in 2019," the bureau said.

Small farms operate over half of U.S. farmland but account for 26 percent of production, according to the U.S. Department of Agriculture (USDA). About 89 percent of farms are considered small and accounted for 52 percent of the land operated by farms in 2017. Ninety-eight percent of U.S. farms are family farms and they account for 87 percent of farm production.

Advice to dealers

"I often advise Michelin ag tire dealers to study and become the absolute expert on tires that offer solutions," Mr. Graden said. "Sell the products that no one else can. By default, he/she will have built a long-term, sustainable relationship with that customer. Additionally, service them as if they are the only customer in town. These customers will not only become friends, but loyal customers for generations. These are our most successful dealers."

ATA's advice to dealers during a flat market is to expand their customer base.

"Our advice is to look for ways to diversify and expand by targeting new segments of the market. This is something we are doing in our own product portfolio. While the HHP professional farmer may not need tires this year, the weekend warrior with a 5-acre yard may need tires now," ATA's Mr. Crouch said.

"As in the past, dealers have to sell a product that runs well and is competitively priced for their market," BKT's Mr. Paulk said. "They have to provide good service and knowledge to their customers. This may be a tough year, so the dealer's expertise will be appreciated to help farmers remain solvent. The dealers that can do this will benefit."