Ag tire makers look to rebound in 2020

Trade tensions and bad weather in 2019 hampered planting and harvesting throughout North America, causing many farmers to be cautious about making major investments in equipment.

Nonetheless agriculture tire manufacturers are optimistic entering 2020.

"Early floods, commodity prices, tariffs—there was just a lot of turmoil in the first half of 2019 that caused a lot of anxiety with farmers and with farm product suppliers like tire manufacturers," said Nick Phillippi, national product manager, Alliance Tire Americas Inc.

"But, really, what I heard from most people as the year ended was that they were pleasantly surprised with the overall outcome. The harvests that were in there were good harvests, yields were good. … The money that was brought through the (federal) payment program from the tariffs, from the government really helped," he said. "I've seen where farm income was actually up last year based on those payments being made."

Phillippi said there is an industry wide sigh of relief that farmers made it through another year.

"And start all over again, like farmers unfortunately have to do every year."

The chaotic year gave farmers less confidence than in previous years, and they spent less on equipment, including tires, according to Bridgestone Americas Tire Operations' Cindy Ridge, marketing director for Firestone Ag tires throughout U.S. and Canada.

Paul Hawkins, Titan's International Inc.'s senior vice president of aftermarket sales in North America, said the overall aftermarket and OE tire businesses were flat and slightly down, compared with 2018.

"2019 was really the tale of two cities—we had areas that experienced substantial growth, and we had other areas that were hit hard by local farm community conditions. For instance, portions of Canada not only had bad weather conditions that impacted planting, but they were also negatively impacted by reduced commodity exports to China. Surprisingly, despite some of the flooding, several of our Midwest dealers had record years in 2019."

"The 2019 agriculture tire market was a challenging one," added David Graden, Michelin North America's operational marketing manager for agriculture. "The ag replacement market in North America ended down, somewhere around negative 9 percent versus 2018. Many tire manufacturers that didn't react quickly either missed an opportunity to take market share from those that overreacted or missed the mark because they were over optimistic.

"The OE ag market suffered, as well," he added. "We saw John Deere move some production oversees, and overall purchasing seemed to decline through the end of the year. Much of this was because of the trade war with China, weather and farmer sentiment as they reacted to political and trade progress or decline rumors."

Phillippi said Alliance Tires sales increased for the year, despite all the market obstacles. He noted there was some tire overcapacity, especially in the first half, as people sat on a lot of inventory mid-year. But capacities were constrained for high-end tires, such as VF (very high flexion) and all-steel products, a situation that he expected to continue this year.

U.S. farm tractor sales for 2019 grew 3.6 percent, while self-propelled combines notched down 0.7 percent, according to the Association of Equipment Manufacturers.

All sectors fell in Canada for 2019, with 4-wheel-drive tractors leading the decline with a drop of 37 percent and self-propelled combine sales falling 19.4 percent for the year.

"While growth hit a bump toward the end of the year, ag tractor and combine sales overall for 2019 ended relatively flat," Curt Blades, senior vice president of AEM ag services, said.

"On top of that, from survey data we gathered along with the Equipment Dealers Association, majorities of both manufacturers and dealers agree inventory levels are sitting about right at the moment, which should put our members and the overall ag sector in a positive place for the near future."

The U.S. Department of Agriculture projected 2019 net farm income rose 10 percent, compared with 2018, mostly due to higher commodity income and the financial assistance provided by the Market Facilitation Program and the disaster aid package approved by Congress.

2020 outlook

While the U.S. farm economy is expected to rebound after a tumultuous 2019, uncertainty remains, according to the American Farm Bureau.

"A majority of the 20 million acres that went unplanted in 2019 will likely be planted (in 2020). Crop yields would also be expected to rebound in 2020," the farm bureau said, noting that passage of the United States-Mexico-Canada Agreement and finalizing a Phase 1 trade deal with China would provide the market certainty U.S. farmers and ranchers need.

However, a return to normal growing conditions and the demand uncertainty in critical export markets could make 2020 another challenging year for the U.S. farm economy, the bureau said.

Graden expects replacement farm tire sales to increase through 2020, with weather and trade agreements playing a very big role.

"We expect OE to remain flat this year, with the stability in trade easing concerns with farmers making long-term investments in machinery," he said, noting that row crop farming drives ag tire sales.

"In Canada, we are hopeful the canola situation will improve significantly through 2020," he said, referring to export issues with China.

"Additionally, in Canada, with the introduction of the CAP program, we expect higher technology tires will see an increase in demand," Graden added, referring to a five-year, $3 billion investment by federal, provincial and territorial governments to strengthen the agriculture sector.

Other tire makers also remain optimistic about the way that 2020 is shaping up.

"In 2020, we do expect to see a recovery of the agriculture economy due to pent-up demand," Rigde said. "We continue to monitor weather and trade dynamics closely. Based on what we know now, we anticipate a slight uptick in farm tire sales for both OE and replacement."

Hawkins, meanwhile, said Titan's 2020 is "off to the best start we've had in the last three to four years.

"We're in the fifth year of a downturn, so it stands to reason that farmers are either going to have to buy new equipment or start replacing their tires soon. 2020 may be the year we start to feel the benefits of that replacement cycle," he said.

Trends

Ag tire pricing was relatively flat versus the last year, Hawkins said. "If current conditions continue, I'd expect pricing to be fairly flat again."

He noted that there has been increased competition in the ag tire market compared with a decade ago.

"One of the main challenges we see is the introduction of new Tier 3 competitors in the market," Graden said.

"Marketing ploys and cheaper products plant seeds of thought that a producer could cut back on their expenses by purchasing cheaper tires for their machinery. Unfortunately, this will often create greater expenses in the long run. Tier 1 tire manufacturers and salespeople now have to work a little harder to educate the end-user prior to making the sale."

He said Michelin has been addressing this issue by training its salespeople and providing them with sales tools.

"In fact, Michelin ag sales reps are the only sales reps in the industry that carry a set of heavy-duty DOT scales with them so that they can properly weigh equipment, make recommendations to balance machinery for optimized torque transfer, set proper air pressures based upon application and implements, and most important, build trust and educate farmers on the importance of proper air pressures/tires for the application," Graden said.

Phillippi said he has noticed an increased interest in VF/IF tires.

"Everybody is talking more and more about (soil) compaction and understanding the long-term and short-term impacts of compaction. When the compaction conversation starts, it rolls into VF, IF, flotation sizes, steel belts, all-steel—all that starts the conversation and then we're seeing movement to VF with OEs and we're certainly seeing farms that are really tuned in to what they need to do to get that one more bushel per acre."

VF/IF tires can carry more weight with less air pressure, thus increasing a vehicle's carrying capacity while reducing soil compaction.

Phillippi said there is certain farm equipment where all-steel tires may be a better application due to the weight they carry or their type of movement.

"But as a rule in farm operations, for protecting soil, VF is good for every single vehicle on the field. And we're now really producing a VF tire for almost every single vehicle that's going to be on that field," he said.

Phillippi also noted that farmers more often are taking their tractors on the road to visit various fields, and so they are more interested in non-typical tread designs that can handle different soils.

Additionally, a lot of small dealers are retiring and there are a lot of small dealers that can't afford the large equipment/trucks to service the larger farm tires, Phillippi said.

"Twenty years ago a service truck was just kind of a glorified truck. You bought an F350 and you put a little bit of equipment on it and you had a service truck. Today, you're spending $140,000 on a service truck capable of handling these tires safely and correctly and where a guy can sit and do it all day long.

"I think there has been a concern about the number of service trucks and service people that are in the market. We certainly see the large farms are getting much larger and many of them now have their own service trucks and do their own service work.

"And that was not by virtue of wanting to cut the tire dealer out, it was really a matter of the tire dealer no longer was going to provide that service. So somebody had to do it, so the farmer had to do it on his own. That's not the rule, that's kind of the exception. But that definitely is a trend we're seeing."

Large tire dealers are running more miles and going further distances, he added.

"Tires today are better than they have ever been, just like equipment, just like everything we buy, really," Phillippi said. "Fortunately there's not a huge issue out there in the world about needing demand-service work. Obviously you have to put new tires on to do the replacements. We don't see the number of service calls today that we did 20 years ago at all. … Overall the tire issues are less than they have ever been because the tires are better than they have ever been."