Ag tire makers optimistic about 2021

CUYAHOGA FALLS, Ohio—Despite the pandemic's continuing grip on the U.S. economy, the agricultural market—farm tire manufacturers in particular—are optimistic about 2021 after upbeat sales in 2020.

"Higher crop prices and improved fundamentals are leading to renewed optimism in the agricultural sector and improving demand for farm equipment," John C. May, chairman and CEO of tractor manufacturer Deere & Co., said in the company's 2021 outlook.

Farm tractor and self-propelled combine unit sales experienced solid growth across the U.S., with some positive performance in most sectors in Canada as well, according to the Association of Equipment Manufacturers (AEM).

U.S. farm tractor sales increased 17.9 percent in 2020, while combines edged up 5.5 percent. For Canada, farm tractor sales grew 10.6 percent for 2020, while sales of self-propelled combines fell 13.9 percent for the year.

"The year 2020 was difficult on a number of fronts, despite uncertainty in the overall economy, the ag equipment market has been pretty strong." said Curt Blades, AEM senior vice president of ag services.

"The growth we saw in farm tractors and combines was pleasant news—driven by largely smaller equipment. Overall, ag equipment manufacturers sold nearly 50,000 more tractors and combine units in 2020 than in 2019 across North America."

This uptick in equipment sales bodes well for the OE farm tire market.

"We are expecting a good year in 2021, especially on the OE side of the business," Paul Hawkins, senior vice president, aftermarket sales, North America, for Titan International Inc., said.

"OE orders are already up quite a bit for Q1 versus the 2020 trend. The fundamentals of the ag business in terms of ag income and commodity prices are in a good place," he said. "Commodity prices are a good indicator of farm equipment spending. Corn and soybean prices have risen to levels recently well above 2020.

"In fact, corn prices hit a seven-year high recently. Soybeans have been on an aggressive increase since midyear 2020, which was the strongest in years. Therefore, we expect a good year in the OE business and the replacement market as well," he said.

Yet farmers could continue to experience a disruptive year in 2021.

"Last year started out tough for many farmers, between trade wars and COVID," Brian Sheehey, vice president of marketing for Yokohama Off-Highway Tires America.

"The impacts of the pandemic hit many farmers hard in early and mid-2020, especially farmers who served the food service markets that were shut down early on or those in the beef or pork supply chains that were interrupted by early outbreaks. However, the government directed a lot of money into agriculture and prices stabilized for many products, so demand from farmers stayed pretty strong even though OEMs slowed down a bit," he said.

"(2020) has been full of unprecedented disruptions to the agricultural economy," according to Brady Brewer, assistant professor at Purdue University's Department of Agricultural Economics.

"Even though we did see farm incomes increase, as well as an improvement in farmer sentiment at the end of 2020, there's still an expectation that we will continue to see volatility and uncertainty in the agricultural economy into 2021."

Trade wars, weather issues and the COVID-19 pandemic impacted commodity prices.

"The trade war actions of the past few years have left farm operators to plan for each year without a clear picture of what foreign markets would be available to them and whether the additional safety net measures beyond those legislated in the farm bill would be made available," Roman Keeney, another associate professor at Purdue University, added.

Tire market

Despite the economic disruptions, the farm tire aftermarket ended up having a successful year, according to tire makers interviewed by Tire Business.

"A number of our dealers have commented that the farm tire business helped them weather the storm early in the year through a period of reduced demand in the other areas of their business," Hawkins said.

Dave Drown, key account manager for BKT USA Inc., agreed that the replacement tire market experienced "reasonable demand" throughout the year. He noted that on the OE side, major tractor tire sales were down, but smaller implement tires "continued to stay healthy."

"The replacement radial farm tire market was up substantially for 2020 with replacement bias coming in at around 2019 levels," Matthew Futrelle, head of the Americas for Continental Commercial Specialty Tires, said.

"The OE market didn't fare quite as well due to some plant shutdowns and some slower order intake during the height of the pandemic."

Futrelle added that while he expected continued growth in the radial tire category and a rebound in OE this year, he didn't foresee growth in the bias tire segment.

"We are optimistic and are expecting continued sales growth in the farm tire market, especially in the value tier with our Harvest King brand as we expand our product range and distribution," Bill Dashiell, senior vice president of the Commercial Tire Division for TBC Brands, said.

Fill rates

Much like the consumer tire market, the farm tire market is experiencing some supply shortages entering the year.

"With the dramatic increase in the OE business, there does appear to be shortages in certain areas," Hawkins said.

"I don't think that this relates so much to specific sizes as it does to overall capacity. Both the OE and replacement markets are important to us. Therefore, we are working hard to increase our tire and wheel plant capacities, not just in the U.S. but around the world. Our aftermarket customers have been supportive to Titan over the last five years, and we are working hard to make sure we have adequate supply for them in 2021.

"A majority of the tires and wheels for our North American customers are made in America. We are less reliant on the global supply chain, which helps our dealers get a consistent, dependable supply from Titan," he said.

"As shipments of late 2020 orders fill distributors warehouses, farm tire availability will improve. The economy is still in doldrums and government policies greatly affect the demand in all segments of tires," Drown said.

Continental Tire should "fare quite well" with demand due in part to its ag tire plant in Lousado, Portugal, that came online in 2018, Futrelle said, adding, "We expect that there could be some overall supply issues in the market due to the overall replacement market growth."

BKT's Drown said: "We have always prided ourselves with fill rates that satisfy our channel partners. During Q1 and Q2 2020, COVID-19 forced plant shutdowns along with freight slow-downs that contributed to lower fill rates.

"Manufactures scheduled production based on demand so that they maximized production, therefore, low-run SKUs experienced the lowest fill rates.

"BKT is fortunate to have four plants located away from each other. This gives more flexibility and, since our largest Bhuj (India) plant is located close to the active port, it did not affect shipments," he said.

Rising costs

In addition to fill-rate issues, tire makers have been dealing with rising raw material costs, which have sparked tire price increases.

"All tire manufacturers are experiencing rising raw material costs coupled with higher costs to deliver our products," Drown said. "If these trends continue, it is inevitable the tire prices will follow. As a manufacturer, we have implemented several manufacturing initiatives that will allow us to keep costs under control. However, we are feeling the impact more of the availability of some raw materials which are in extreme short supply."

Hawkins agreed. "Raw material prices, logistics costs and operational costs are increasing in our industry, just like many others. A lot of the logistics and operational cost increases are due to the COVID pandemic itself. As a result, we and a number of our competitors have already announced price increases in 2021. It's a volatile environment and our team constantly monitors the market. We will adjust quickly to the changing competitive environment."

Futrelle said he would not be surprised if the industry sees more price increases.

"Our core input costs have begun to increase as many commodities have. Shipping costs surged at the end of 2020, as well, due to demand versus vessel availability. Freight costs impact you whether you are shipping tires or the components to build them," he said.

TBC's Dashiell said he also expects market prices to increase in the first half due to escalated freight costs from domestic and ocean rate carriers.

Farm trends

As small farms continue to consolidate, new farm tire manufacturers are moving into the North American market, according to Futrelle.

To compete, Continental continues to push new sizes and technology into the farming market, he said.

"At Continental we have a diverse offering to the farming industry. We supply many tractor components like sensors, harnesses and instrument clusters as well as conveyor belts, rubber tracks and, of course, tires. We will continue to harness synergies between our offerings to provide value to the farming industry," Futrelle said.

"It would appear that after a number of years, the basic economics around the farm business are improving," Titan's Hawkins said, noting that commodity prices should lead to a solid improvement to the OE and replacement markets.

"To best address these trends, we're hiring more employees and increasing our plant capacity. We are also staying as close as possible to our customers to make sure we are producing what's needed. We're also continuing to focus on product development and innovation.

"As we begin 2021, we are continuing to invest in product development that will open up new opportunities for us. For instance, we are introducing the Titan AgraEDGE—our new radial R-1W line currently available in 15 row crop sizes. A total of 40 sizes will be introduced this year including the most popular sizes for MFWD tractors, 4WD tractors, combines and grain carts. ... This will be an incredibly price-competitive tire coming out of our U.S. plants—providing consistent, reliable supply where there may be gaps in supply with other price-competitive manufacturers.

"Finally, our Low Sidewall (LSW) Technology remains a differentiator for us because of the superior performance attributes they offer for our customers," Hawkins said.

"There are always issues that are out of our control such as weather/national disasters, logistics issues, pandemics, labor availability, government policies like trade tariffs, export initiatives, crop insurance, imports," Drown said.

"There are positive trends like expanding opportunities in the radial ag tire market. IF, VF, radial implement tires and others have opened the doors to new business," he said.

"At BKT, we focus on offering value for money spent on our products. We also concentrate on controllable issues like designing tires to meet the ever-changing demands of bigger, faster, high powered tractors and implements. This requires tire manufacturers to constantly continue efforts to improve manufacturing operations."

Yokohama Tire Corp. (YTC) started the year by combining its OTR tire sales operations under the new Yokohama Off-Highway Tires America.

"One of the benefits of having Yokohama OTR, Alliance, Galaxy and Primex (tire brands) together is the ability to provide almost 4,000 SKUs and cover just about any need on the farm—which is a huge number of wheel positions of just about every size," Rasey said.