Farm tire manufacturers expect another very good year in 2011 after the market experienced a dramatic upswing last year.
Following double-digit declines during 2009, all three measures of farm sector earnings—net cash income, net value added and net farm income—are expected to rebound to record or near-record numbers for 2010, according to U.S. Department of Agriculture data.
Preliminary reports show net farm income will reach $81.6 billion in 2010, a 31-percent jump from 2009 numbers and about $5.9 billion below its all-time nom- inal record in 2004. Net cash income is expected to rise nearly 34 percent from 2009 and reach a record $92.5 billion. Net value added should reach $132 billion, or about $20 billion higher than in the prior year, the USDA said.
The growth can be attributed largely to increases in commodity prices and production. Cash receipts are expected to rise 10.4 percent for sales of farm commodities in 2010, including an increase of $9.4 billion for crops, primarily from cotton, soybeans and corn. Livestock receipts for 2010 are forecast to increase by about $20 billion.
These high commodity prices and production numbers have proved beneficial to farmers, who have had no trouble buying new farm equipment.
According to the Association of Equipment Manufacturers' December 2010 Flash Report, 100-plus horsepower two-wheel-drive farm tractor sales increased 18.2 percent year-to-date over 2009. Four-wheel-drive farm tractor sales increased 28.3 percent over the same period while self-propelled combine sales grew 10.3 percent.
Even two-wheel-drive tractors under 100 horsepower, sales for which either have remained stagnant or declined in the last few years, have seen a small boost in sales. The trend has been good for farm tire manufacturers, and one they believe will continue.
Tire makers optimistic
“If you look at the situation that's happening in the farm area, you look at the price of crops—they got to drop an awful long ways before people will start dropping off—we're real excited,” said Maurice Taylor Jr., chairman and CEO of Titan International Inc., during a December conference call with investors. “We believe this thing is just going to roar right into 2011.”
Tom Rodgers, director of marketing for Bridgestone Am¼er¼icas' Agricultural Tire, U.S. & Canada Commercial Tire Sales Division, said the company expects demand for new equipment in 2011 to be on par with the previous year.
“A lot of it has to do with the crop—once it's in the ground and when it comes out of the field tends to start shaping that one way or the other—but early indications are that 2011 seems to be an equally strong year compared to 2010 in tire sales at the OE level and in the replacement market,” he said.
Bill Haney, sales manager, North A-merica for BKT-Tires (USA) Corp., said the company also anticipates double-digit growth in big ag sales to continue, at least through April.
“Our OE business is just starting in North America. We expect that it will share a rapid growth rate, as did our replacement market in recent years,” he said. “In Europe, we experienced rapid growth for both OE and replacement. We feel this will happen here as well.”
Jeff Jankowski, director of sales, agricultural and forestry tires for Trelleborg Wheel Systems Americas Inc., said far-mers in 2010 had a “real nice profitable year,” which probably means more equipment purchases in 2011.
“Those that harvested and planted wheat, corn, soybeans, cotton—I would say my belief is that on those four-wheel-drive tractors especially for those bigger farms the numbers are going to be close to what they were in 2010,” he said.
In addition to commodity prices, another issue that could drive ag tire demand in 2011 is the potential for food shortages, according to Jankowski.
“There may be some areas globally, because of weather conditions primarily, that won't be able to plant and harvest enough to feed their own people,” he said. “They'll have to find other sources. There would be demand for farmers globally to perhaps plant and harvest some land that they may have left dormant for a couple years.”
One of the most pressing issues for farm tire makers this year is the improvement of fill rates, which have been an ongoing industry-wide problem.
“With the way the industry's going and ag equipment and the ag tire business, where demand is extremely high, quite honestly right now we're probably not be- ing the best supplier out there in meeting that demand,” Rodgers said.
Firestone unveiled plans last year to invest $77 million over three years at its agricultural tire plant in Des Moines, Iowa, but Rodgers said capital spending there is “up around $100 million now.” Investments are being made in tire building, curing and support equipment to meet increasing demand, especially for larger-sized tires.
“We've basically got about a quarter of that $100 million probably in place now and a little bit still in the ramp-up phase, but we've really started to see some production from that area,” Rodgers said.
“I think in 2011 we anticipate, of that total, another half of it will hopefully be in place and ready to begin producing by the end of the year,” he said.
Haney said BKT has experienced increases in demand for its larger farm tires as well as some small sizes that some domestic manufacturers have discontinued. With higher sales, the firm has struggled to improve its fill rates.
“BKT has been working on continuous improvement in this area, and fortunately, we were able to sync our internal improvements with the uptick in demand,” Haney said. “BKT has also expanded tire capacity in recent years.”
Jankowski, however, said Trelleborg has managed to avoid many of the inventory issues that have plagued tire makers, with upgrades to its Tivoli, Italy, plant and off-take agreements with other manufacturers.