Farmers expect to spend profits on tires, equipment

High prices for eggs and other food commodities not only have generated headlines of late, but also some extra cash in farmers' wallets. That is good news for the agriculture tire market.

"2022 farm income was pretty good, so farmers have cash. So they'll be increasing farm acreage, probably, so that will mean more usage of farm equipment and more usage of farm tires," Paul Hawkins, senior vice president, aftermarket at Titan Tire Corp., said.

The U.S. Department of Agriculture predicted that net farm income, a broad measure of profits, would increase 13.8 percent in 2022, compared with 2021, which saw a surge of 49.3 percent over 2020.

"I believe we will see strong demand for farm tires in 2023. Though prices for inputs, especially fertilizers, rose dramatically, high commodity prices have helped offset the costs," said Blaine Cox, national product manager—agriculture, golf and turf for Yokohama Off-Highway Tires America Inc. (YOHTA).

"Canadian farmers had some decent rain in 2022, which was an improvement from 2021. Back down here in the states, milk producers in particular enjoyed strong demand and good prices, which helped make up for the high cost of feed.

"As a manufacturer of tires for tractors, combines, implements, sprayers, skid steers, loaders and manure equipment—all of which are used on dairy farms and other operations that integrate livestock and crops—we are always happy to see livestock producers making money," Cox said.

"The timing is good for farmers in the sense that crop prices are high, and farmers are making some money, but with aging equipment and more cash in hand, it's time to spend," said Tony Orlando, who recently expanded his title to president of Bridgestone integrated agriculture tire business—Americas, Europe, Middle East, India and Africa, for Bridgestone Americas Inc.

Farmers who wanted to buy new equipment often were deterred by low OEM inventory.

If farmers can't get new equipment, they prolong the life of equipment they have, resulting in strong demand in the aftermarket channel, the tire makers said.

"I think farmers want to buy a lot of new equipment," Hawkins said, adding, "There's a lot of demand out there. Supply chain issues hampered filling that demand."

Cox noted that tractor sales were flat in 2022, compared with 2021, though combine sales increased dramatically.

"All in all, our OE tire sales were stable. Replacement tires have been in high demand as farmers kept their machinery going and spruced up used equipment they purchased. Farmers and machinery dealers recognize that tires can provide a cost-effective and immediate boost to equipment performance," he added.

The tire makers have a positive outlook for this year.

"Crop prices are good, farm income for 2023 is going to be pretty solid. People are going to have money to spend. … Farmers are going to plant a fair amount of acreage, so I think equipment will be in demand," Hawkins said.

"Some of the supply chain issues are still out there. I'm not sure what kind of supply will be available for OE, and I think that will be a benefit for the aftermarket. We foresee a pretty good year for the aftermarket," he said.

"Farmers are definitely spending," Orlando said, adding, "Certainly, there's a bit of headwinds regarding OEs having sufficient labor or components for their production; there are some challenges there. Farmers are facing higher input costs and escalating financing costs, but I think they are doing what they can to get new equipment in the field."

Cox noted that this year Congress will be deliberating on the five-year renewal of the so-called Farm Bill, which "always creates a little uncertainty about farmer spending."

"But I believe farmers will continue investing in their operations and seeking out tires that will help them stay productive and profitable," he said.

The farm tire market remained strong in 2022, despite some fill rate issues.

"For us in the aftermarket, 2022 was another year of solid growth," Titan's Hawkins said.

"We were able to grow our business a little bit, which is always good in a tough market, especially in radial rear ag, which is a hot category right now. There seems to be more and more of the businesses going that way, and we got a new entry in that area called the AgriEdge. It was very well accepted, and we sold quite a few of them. So it was a good year for us, especially in radial rear ag.

"OE was a similar story. We had a good year in OE. I think the story of ag as far as OE and aftermarket is a balancing act. There were not enough tires to go around (in 2021 and 2022). We decided we were going to set aside a fixed percentage for our aftermarket dealers," Hawkins said.

"We were able to fulfill commitments on the OE side and do a good job of servicing our aftermarket dealers. So overall I think it was a pretty successful year for Titan," he said.

"We saw year-over-year growth across all the different sizes, and certainly with respect to radial, demand has been very, very strong in 2022," Orlando said. "We anticipate another strong 2023. We anticipate, for both dealers and OE, year-over-year growth in both channels."

Fill rates were a lot longer early in 2022, but they have slowly gotten better with increased production, Orlando said.

"Demand was so strong it outstripped our ability to supply. Order fulfillment admittedly was low. It's taken a while. It's gotten substantially better in the past three months. But it was certainly a challenge for us in the first half of 2022," he said.

"Every indication that we have is (2023) should be a strong year, the whole year throughout the four quarters. There's always some risk that demand slows down because farmers are deciding they don't need the equipment, or they want to wait, or they can't afford equipment. So that's always a risk," he said.

"We're anticipating what I'll call industry demand up 5 percent, maybe as much as 10 percent, over 2022. We're continuing to hire within our Des Moines (Iowa) tire manufacturing plant. That is a strong focus for us," Orlando said.

Bridgestone aims to add "well over 100 people" at the Des Moines plant just to meet demand, he said, noting Bridgestone has the equipment capacity; it just doesn't have enough labor.

"We'll have more output from the plant, but it's not because of equipment; it will be more because of labor," Orlando said.

Titan also has been dealing with labor shortages at its tire plants.

"I don't think we're unique there; it's true throughout the country," Hawkins said. "So the consequence is we're doing a lot of training of our employees. We're being very careful about the people we recruit into our plants. We're trying to spend a lot of time making sure that we are a fit for them."

Titan didn't add a lot of equipment, but it did need to add more employees to "significantly increase our production," he said.

Hawkins said there has been, and continues to be, shortages of radial rear farm tires for tractors. He said Titan is taking capacity from other areas and moving it to production of these rear tires.

"We intend to have more of the radial rear farm tires this year. So maybe not an increase overall of capacity but an increase in the capacity that is in most demand," he said.

"We make decisions at the beginning of the year on what percentage is going to OE and which goes to aftermarket. Then we go out to our customers and try to tell them this is what we have available so we can be fair to everybody and support both sides of our business," Hawkins said, noting that to the customers Titan promised orders, "we did a good job of filling their orders."

Yokohama also has been expanding its tire manufacturing capacity, according to Cox.

"As our new factory in (Visakhapatnam) India begins its next phase of expansion, we expect to continue to be able to meet all our customers' needs across our range of sizes and market sectors," he said.

Last year shipping disruptions impacted not only the delivery of tires but also raw materials. But the situation is expected to improve this year, Cox said.

He predicted tire pricing in 2023 is going to be largely driven by raw material prices and shipping costs.

"If we can see those continue to fall, I believe we'll see it reflected in tire prices. We keep a close eye on costs and market conditions and do our best to make sure customers get the best possible value," Cox said.

While farmers may have money to spend on tires, some seem to be more cost-conscious, according to Joseph Inchiostro, CEO of St. Louis Wholesale Tire.

"A trend we see nationwide in the aftermarket agricultural tire segment early on in 2023 is an increased interest and subsequent demand for mid-tier and value-point ag and industrial tire lines versus the traditional big-name brands," he said.

"The litany of economic uncertainties facing small business owners, farmers, down to the retail consumers have resulted in buyers looking to minimize risk and maximize the value of their purchases, aka get the most bang for their buck.

"This creates an opportunity for dealers to service their customers' needs, improve margins, and grow their business by having quality price-point product alternatives in stock," said Inchiostro, noting his company is eyeing 25 percent unit growth in ag and OTR tires this year by boosting inventory on mid-tier brands.

With the threats of inflation and recession looming in the U.S. economy, Bridgestone's Orlando said there are actually two economies he watches: the general economy and the ag economy.

"I'm not concerned about the general economy slowing down. Some tire dealers who carry ag and passenger car and truck tires suddenly have too much inventory and not enough warehouse space to accommodate ag. But that's not happening very much."

For tire dealers, it's a channel choice: Will they focus more on the consumer/commercial market or the farm market?

"It's probably worth risking having less passenger car and truck inventory during those seasonal peaks. That's important for them to make sure they have sufficient ag tire inventory to cover those seasonal demands," Orlando said, noting that ag tires can be a hedge for their businesses since the farm market is strong while the passenger/truck tire market and general economy are weaker.

"It would be a good business model for them to shift their product mix, shift their sourcing mix more towards ag because it will be a strong market," Orlando said.

"Farm economics are always a wild ride," YOHTA's Cox said.

"From the moment Russia invaded Ukraine and fertilizer prices went through the roof in February of 2022, input costs have been a challenge. Crop farmers have faced high land prices, high chemical prices on top of herbicide-resistant weeds, and delays in replacing equipment. Livestock producers paid more for fuel, feed and labor.

"But consumer demand was strong, so commodity prices held up, and farmers were able to make some margin. So I believe we've gone into 2023 feeling pretty decent about the farm economy," Cox said.