Global disruptions, farming trends impact ag tire market

AKRON — The agricultural tire market is expected to remain fairly stable for the rest of the year, except for one possible disruption: the end of Ukraine's war with Russia.

"I think you're going to see OE stay fairly stable for the rest of the year, as it was last year, with the one exception is once the war in Ukraine is over, all bets are off," said Ryan Loethen, president of CEAT Specialty Tires North America, during a recent ITEC panel discussion.

Since Russia invaded Ukraine in February 2022, the ensuing war has disrupted agricultural production and trade in Ukraine — considered one of the world's largest agricultural exporters.

Once the war is over, there will be international interest in rebuilding Ukraine's devastated agricultural economy.

"What's going to happen is the IMF (International Monetary Fund) is going to put billions and billions of dollars in Ukraine, and what are they going to buy? They're going to buy John Deere and Case (farm equipment) and everything else. That's going to create a huge OE (tire) demand," Loethen said.

"While it's not going to necessarily increase OE demand in the U.S., what it is going to do, it's going to suck up a lot of the tires. As soon as that happens ... we're going to see a severe tire shortage. Because why would Michelin ship their tires to the United States when they can keep them in Europe? Why would they? Why would BKT ship from India all the way to the U.S. when they've got a huge European presence. They can just put them right there.

"And what's going to happen here, if I had unlimited IMF money, I'm going to buy John Deere, I'm gonna buy Case. I'm not going to buy an off-brand tractor. I'm gonna buy the best. And that's basically what they're going to have is a blank check from the International Monetary Fund. And so that's going to suck up a lot of the Goodyear tires, the Titan tires, the Firestones that have a contract with John Deere and Case and it's going to take them out of the market," he said, adding he expects to see the severe tire shortage scenario to occur within this year.

Loethen was part of a panel of tire manufacturer representatives who discussed trends in the U.S. ag tire market, including Dave Paulk, manager, field technical services, BKT USA Inc.; Patrick Shelby, ag product specialist, Titan International; and James Crouch, national segment manager, agriculture and forestry, Yokohama Off-Highway Tires.

"I think everybody's finally over the COVID hangover," Crouch said.

"Like everybody was really happy for a couple of years and then everything normalized. And I think what we're looking at, for the aftermarket, we just were looking back before COVID, we're looking at like 2018-2019 numbers and saying, 'Okay, that's probably where we're going to be now that things are normal again, as normal as it's going to be," he said, adding, "I don't see any double-digit ups or downs. I don't think we're gonna see anything crazy with OE or replacement."

Titan's Shelby said with recent John Deere layoffs, he expects a downturn in OE in the very near term. But that's good news for the aftermarket.

"That means equipment is getting reshoed as things wear out. So for us, that's always an opportunity. As the standard fitment wears out that has a potential LSW (Titan's low-sidewall technology) flotation conversion for that unit. So despite all OEM looking down in the near term here, the aftermarket is definitely an opportunity for us to get into changes to our LSW flotation," Shelby said.

Loethen doesn't expect as much of an offset between OE and aftermarket as in past cycles.

"I think people are holding their money. They're running their tires longer. ... I think there's so much uncertainty in the U.S. in terms of the economy, in terms of the political situation, and farmers tend to be extremely conservative with their money. They're holding on. And could there be a release and a big end-of-the-year buy? There could be, but I don't believe so," Loethen said, predicting that growth would be in the single digits.

Crouch predicted farmers are going to refrain from purchases until after the November elections.

Another war, in the Middle East, has created shipping route disruptions as Iranian-backed Houthi militants in Yemen have attacked ships heading for the Suez Canal.

Several shipping companies have rerouted their ships to take the longer way around the southern tip of Africa on their way to Europe and North America, increasing the delivery times and prices.

"The Red Sea thing is a pain in the butt for sure," Crouch said. "I mean, we've had to send containers the opposite way around the world to get here. Instead of just coming west, we have to go east."

To add to the pain, the shipping companies are increasing their prices across the board, even for customers not affected by rerouting, Loethen said.

"So you're seeing a uniform price increase, which is irritating. But that being said, we're also seeing a rail strike in Canada — nothing goes easy in the tire business.

"We're now dealing with the rail strike, we're dealing with increased overland costs, we're dealing with a shortage of truck drivers. So all these things again, it's going to be challenging.

"The hardest thing is going to be logistics over the next year. I guess people don't realize that tires are probably the most geopolitical-sensitive commodity to have. Because in it, there's rubber, there's petrochemicals, there's steel, there's everything and none of these things can be acquired from particularly safe places. They come from where there have been turmoil. So that means that the tire business is always in flux. It's interesting and it can be maddening at the same time," Loethen said.

Closer to home in the U.S., farms that buy the ag equipment and tires have become bigger and fewer, and that has impacted tire design.

In the mid-20th century a typical farmer worked 250 acres. Some counties had 50 farms with 50 farmers, Paulk noted. As their children grew up and moved away, farmers started selling their land or renting it out so those counties that once had 50 farmers now have about five, he said.

Some farmers or conglomerates own multiple plots of land miles apart from each other.

"Farms are getting bigger; farmers are having to travel; tractors have gotten bigger, faster, heavier; implements have gotten heavier; and so we've had to develop tires to kind of go along with that to handle the weights, the speeds, things like that," Paulk said.

"I've got guys I've see in the field, they're going upwards over 50, 60, 70 miles sometimes from field to field. That's how spread out they are. So it's an immense change with time on the road now," Shelby added, noting that travel time takes time away from working in the field.

An increase in adverse weather also has reduced the number of days farmers can spend in the field.

Loethen noted that there are still small farm operations that may focus more on livestock. While big crop farms have changed, the basic local farms have not.

"So it's almost like there's two tiers to the farm system right now. There's about almost even three tiers: you have your row crop guys absolutely getting bigger and heavier, the equipment is expensive and requires larger tires. You also have your livestock farmers and your basic level farmers that still exist in the lower Midwest and mid South, in Appalachia and still even in the West, that still require a lot of bias (tires), still in the livestock. Maybe not going to buy a ton of tires at once but consistently buy local. So it's most important that we don't leave them out.

"And then there's the third tier, they're called doctor farms, who moved out during COVID and they still use a lot of bias tires and smaller tractors. ... They're doing this for fun and enjoyment," Loethen said.

As farm dynamics have evolved, so has tire design, the panel said.

With changing weather conditions and equipment getting larger and heavier, tire makers are forced to address more demanding requirements under the same design restrictions inherent in tires.

"We're not only having to carry more weight, but we're having to do it with our higher speeds and longer distances. So tires don't like heat," Crouch said, adding, "When you're cooking down the road at 35 miles an hour for 20, 30, 40, 50 miles, you generate a lot of heat and a lot of wear. And the expectation is still that the tire lasts as long as the tractor does. ...

"If you look at what a tractor did 100 years ago versus today, it's barely identifiable. Like they're on the road. They're carrying these mountains of hay. So tread designs are going to be changing a lot," Crouch said.

"I think you're going to see a lot of people try new things with different tread designs, different rubber compounds to try to be stiff enough and durable enough to where it doesn't get chewed up by stalks, but at the same time, it can perform like a highway tire," Crouch said.

"So I mean, these tractors that we're dealing with today, they're high-performance vehicles, like a sprayer, they are a performance vehicle. These things are a million bucks, and they're going 40 miles an hour up and down the road and the tire has to be what you would expect with a Ferrari. So we're going to see a lot of different changes and I think sprayer tires are already starting to go that way because they're on the road a lot; floaters are starting to go that way with different tread designs. And I think that's going to continue."

Paulk noted: "You always give up something to get something. ...

"You've got to walk that fine line whenever you do it because when you get in the field you got to have traction but you want to do alright on the road and you don't want fast wear on the road. So this is a fine line to walk."

Wetter weather conditions and soil compaction also have to be addressed in tire design.

Paulk noted that crop plants themselves also present a new challenge for tire design. More farms are growing genetically modified crops to increase their yields during shorter seasons. But these crops have harder stumps, so tires have to be built to withstand stubble damage, he said.

Loethen noted that with the harder stubble, if a tire gets damaged, "you've got to get it fixed immediately. And let's be honest, the people who actually service tires aren't there anymore. Now they're few and far between. ... You cannot afford downtime, ever. Your tire has to perform, it has to be stubble-resistant. If it goes down, you may be down for awhile, and with the shorter growing seasons, you can't afford to be down."

Crouch noted there is a long-term trend toward radialization in the North American farm market, at a pace of about 1.5% gain per year.

"There's a lot of very competitive radial tires coming to the market now that kind of take that fear away or that shock factor away from the price increase that applies to a radial. ...

"So the radialization is happening. It's happening with the help of low-cost manufacturers. It's helping with OE manufacturers, also, who are going with radials over bias in the factory. So it's trending that way. I don't know where it's going to land. All roads lead to Europe, it's kind of the way I see it. Europe's radialization is much more advanced than the North American market. And we'll catch up to that point, but it's slow," Crouch said.

CEAT's Loethen said that a few years ago, the company's sales mix in the U.S. was about 70% bias. Now it's about 45% bias and 55% radial.

"We haven't lost any sales in bias. The bias sales are the same, relatively steady. However the radial sales have really increased. So I think a lot of the new business you see is going to be radial. I still think there's a huge market for bias," he said.

"So I think there is a huge place for bias in the compact tractors. There's a huge place for bias for us in older stuff that the livestock farmers use, that ranchers use because there's a little bit of apprehension about radialization simply because of the price point. But there's still a huge place for bias. But radial is definitely growing at a faster rate," Loethen said.

"I've never seen anybody who regretted going to a radial over bias. Like once you go radial, you don't go back. That's where that trend's coming from. And I don't think it's going to change. It'll accelerate," Crouch said.

"There's still a ton of bias out there," Paulk added. "And there still is some difference in price and there are some of these guys who say, 'You know, I don't really need a radial.' And in some areas, it is kind of hard to push them, especially when you get into the light dairies, hay and stuff like that. And in some of those areas, bias does work a tad better."

Larger equipment have been equipped with radial tires for years but now radialization is working its way down to smaller utility, compact and implement equipment, Shelby noted.

Rubber tracks are coming on more OE farm equipment and they provide a useful alternative to tires in some conditions.

"We're introducing our tracks this summer so I don't want to throw shade on tracks. I mean, I think there's a place for tracks," CEAT's Loethen said. "... I think tracks are important. I think tracks are an insurance policy for guys who are going to be in wet weather areas and can't get to everything. I think every farmer probably should have a vehicle on tracks, not all vehicles, but just a couple. It's an insurance policy.

"... I still feel, in the studies that I've seen, is that a properly inflated radial tires still have less compaction on the soil and does less damage to soil than a track does. And that's what I see, but the key is a properly inflated VF tire," Loethen said.

"I think tracks have a place. They're not going to go away anytime soon," Crouch said. "They're maintenance-intensive. ... But where they do have a place they'll get you out of a sticky situation pretty well. ...

"But I think with the introduction and the slow adoption of central tire inflation (CTI) systems, they will compete against a tracking deal. So the idea behind a CTI system, with a central tire inflation system, is that the tire has the capability at the push of a button to be at exactly the right pressure at all times. So with that you're going to see a dramatic improvement in performance in pneumatic product versus a track. It's expensive, not nearly as expensive as the track, and I think it's just now starting to get the accreditation of the big OEMs and that's what it is going to take."

Loethen noted that pressure is a key factor, as vehicles don't use the same air pressure on the field as they do on the road. Farmers will be more apt to change to proper air pressures for various surface conditions if they can do it with the CTIs.

Crouch noted that OEMs are starting to adopt the technology. "Not because it gives the tire people a lot of big benefits but because it helps them tap this massive amount of horsepower to the ground. You can't do it with an overinflated tire. ...

"The only way that the system is going to be successful is in the next generation of that system to where the tire inflation pressure is going to become a variable and it's going to be something that is constantly fluctuating. So what's going to happen, like a radiator opening on a car, it's just going to happen.

"So as long as there's a person in the seat that has to push a button, that's the weak point of the whole system. You take that away, make the air pressure load-sensing or whatever so you can constantly change that air pressure, the tractor performs like it's supposed to. That's going to be the next step," Crouch said.

CTI can cost around $30,000, but research has shown that lowering compaction and increasing yield by just 2% can offset the cost of the system, Paulk said.