Tire makers expect ag market will continue to flourish in 2022

AKRON—Farming had a strong year in 2021 with the agricultural tire market experiencing high demand in both OE and replacement sales.

This year is expected to be more of the same, according to tire makers.

"The 2021 farm tire market was very strong," David Graden, marketing manager for agriculture at Michelin North America, said.

"Most of this was driven by low input costs, high commodity prices, resulting in higher-than-normal net farm income, etc. In fact, the demand for OE exceeded supply and, therefore, drove replacement demand even higher."

Tony Orlando, president of Firestone Agricultural Tire Co. at Bridgestone Americas, said a positive regulatory environment, strong planting estimates and, most significantly, an increase in large equipment sales, drove the upswing in the ag tire market.

"Firestone market share across both OE and in the aftermarket channel improved in 2021, especially on higher horsepower applications," he said, adding that he expects the momentum in farm tire sales to continue this year due to strong farmer confidence and large equipment sales.

"We actually delivered more product this last year than we ever have," said Doug Kershaw, vice president of BKT USA Inc. "And we still didn't meet the demand. So it was actually a good problem to have, but at the same time we tried everything we could to service our customers as best as we could."

CEAT Specialty Tire Inc., according to President Ryan Loethen, "had a lot of increased demand in OE and a lot of increased demand in replacement."

"In fact we doubled our sales from last year. About 80 percent of it was replacement and 20 percent was OE, but considering we were 2 percent OE the year before that, it's a pretty significant increase."

He said some of the OE tire sales targeted used farm equipment.

"There is so much demand for used equipment right now. ... There is a huge demand for new equipment right now and that demand, I think, will outstrip supply. So because demand is so high, it's also generating a huge move to the used equipment, as well, because people can't get what they want."

The replacement tire market is growing due to increased demand for farm equipment, for food and, worldwide, for agriculture products, he said.

"People are holding on to equipment longer than they have in the past because OEMs can't quite meet that demand. So (farmers) are holding on to that equipment longer, therefore the replacement market is up as well," Loethen said, adding, "it's a very unique situation to see OE and replacement up at the same time. It hardly ever happens."

Paul Hawkins, senior vice president, aftermarket sales, North America for Titan International Inc., agreed.

"The OE market was very strong in 2021, and Titan saw a significant increase in sales compared with 2020. We came into 2021 expecting OE orders to be up, and it was great to see that come to fruition following a drop-off in OEM production in 2020. It was also a good year for the aftermarket. For both segments, sales were well-matched to production," he said.

"A lot of our dealers relied heavily on the strong ag market throughout the pandemic. Unlike the passenger tire market that was heavily impacted by lack of travel, farming never stopped. So it has been an increasingly vital part of our dealers' businesses. Where our dealers were perhaps more impacted by COVID was with staffing levels," Hawkins said.

"I think it's going to be a great year for everybody," CEAT's Loethen predicted.

"The ag market is growing. There's going to be demand for all manufacturers to supply and no one or two manufacturers can supply what the market needs right now. So I think it's going to be a very great year for all the tire manufacturers and all the tire dealers, too," he said.

"There are a number of indicators that point to a strong 2022, including commodity prices, farmer sentiment and the farmers capital investment index reaching all-time highs in 2021," Hawkins said.

"As a result, we have a very positive outlook for both OE and replacement sales this year. OE demand, in particular, is explosive right now. And in the aftermarket, our order deck is full into the summer months.

"We are confident that everything we make will get sold," Hawkins added. "My message to dealers is they should be thinking ahead to harvest season right now in terms of their tire and wheel needs."

Michelin also expects increased demand will continue to exceed supply for all farm tire manufacturers throughout the first half of 2022, at the least, Graden said.

Fill rates and supply-chain disruptions will still be challenges this year.

"Whereas all ag tire manufacturers are doing their best to fulfill the OE and replacement demand, we are all still leaving some demand on the table," Graden said. "We are beginning to see some light at the end of the tunnel, but there is still some rocky road to travel before we get there."

BKT is in the process of ramping up capacity at its plants in India to address the continued demand in North America, Kershaw said.

"We're seeing that demand is not letting up at all," he said, adding, "We should be able to fulfill more of the demand than even what we did last year."

CEAT's Loethen added: "It was one of those situations where demand exceeded supply, which is always a good thing for the manufacturer. To counter that, CEAT expanded our production and we were able to fill all our demand. Not everybody can say that."

Titan has the advantage of U.S.-based production facilities to offset the import shipping disruptions, Hawkins said.

"We are also actively prioritizing inventory to our OE partners and key dealers to ensure supply in both the OE and aftermarket channels," he said, adding that the popularity of larger, higher horsepower equipment has led to increased demand for larger radial sizes.

The quick recovery in ag equipment sales in the second half of 2020 caught everyone off guard, Firestone's Orlando said.

"As a response, part of the recovery plan continues to be hiring of additional staff to provide timely, local supply at our Des Moines, Iowa, manufacturing facility and working with our local dealers and representatives to manage our existing supply," he said.

"Issues and trends I am watching closely pertain to shipping/logistics, overall market supply, farm net income, commodity prices and OE manufacturers' ability to supply their demand," Graden said.

"Michelin is constantly watching and taking necessary action with regard to manufacturing capacities, labor needs, inbound supply/logistics and customer order allocations. With every tweak to the process, there is a direct result and chain reaction. We carefully build our strategy, then make the necessary moves."

The spike in shipping costs have prompted many manufacturers to increase their tire prices.

"The shipping costs have created a spike in ag tire prices, well all tire prices coming from overseas, whether it be from Europe, India or China, it really doesn't matter. Container costs are up very high and that is where you are seeing the increase in the price of tires," Loethen said.

"At Michelin Ag, we are working very hard to find a careful balance between covering our rising costs and managing our competitive price. We don't take this job lightly and will continue to watch this fluid situation closely and react as necessary," Graden said.

CEAT's Loethen said he expects shipping costs to decrease slightly this year.

"Containers are expected to decrease $4,000 per container this spring, but it's still double from a year ago. ... It should continue to ease over the year as more containers are built and more ships come online. It's not going to come down to 2019 levels probably for another year or so," he said.

Hawkins predicted there may be some more tire price increases, "but we don't expect it to be as dramatic as last year when raw material prices and logistics costs were on an exponential rise. We're seeing those issues start to stabilize."

The overall advice to farm tire dealers is to focus on acquiring inventory and plan ahead.

"Build up your inventory and you won't have any problem selling it this year," Titan's Hawkins said.

"Stock your tires. You can't sell off empty shelves," CEAT's Loethen said, adding, "Order heavy, order ahead, don't be afraid to stock tires. If you have them, you will sell them. Don't be bashful. This is one of those years where you can do two things, you can order as much as you want and sell everything you have; and you can make money. ...

"What's going to happen is if you don't have it, (customers) will go to somebody else and they'll have it and you lose that sale. And this year you can get that sale. Remember, if you miss an ag sale, you miss that sale for five years," Loethen said.

"Among other things, the greatest advice I can give to farm tire dealers is to keep us apprised to the ever-changing environment," Michelin's Graden said.

"As you see things changing with regard to market needs, increasing/decreasing demand from your local producers, product-specific issues, etc.; please let us know. Place your orders well in advance of your usual needs and we will do our best to fill your needs as quickly as possible."

Farmers have been taking advantage of a positive financial position to invest in new equipment.

The agricultural credit market is riding several positive trends into 2022, according to Brady Brewer, assistant professor of agricultural economics and Todd Kuethe, associate professor, Schrader Endowed Chair in Farmland Economics at Purdue University.

Low interest rates are prompting farmers to acquire capital assets. If farm loan demand increases, banks appear to have a sufficient stockpile of funds available to loan.

"However, there are some negatives at the moment as bankers are reporting higher rates of non-payment from farmers. This would indicate that the liquidity positions of farmers may be deteriorating as they have less cash on hand to pay off current debts."

Deteriorating liquidity and uncertain Federal Reserve interest rate policy will be key drivers in 2022, they said.

Net farm income increased 19.6 percent in 2020 and was forecast to jump another 19.5 percent in 2021, according to the Association of Equipment Manufacturers (AEM), noting that net farm income is at its highest level since 2013.

Farmers have been taking advantage of their good financial position to invest in new equipment, according to the AEM.

Retail sales of two-wheel-drive farm tractors in the U.S. increased 10.2 percent in 2021 over 2020 (led by a 24.1 percent jump in 110 HP-plus tractors) while sales of four-wheel-drive tractors and self-propelled combines surged 18.3% and 24.7%, respectively, for the year, according to the AEM.

In Canada, sales of two-wheel-drive farm tractors increased 19.1 percent (led by a 33.6 percent surge in 100 HP-plus tractors), while four-wheel-drive tractor sales jumped 32.7 percent and self-propelled combines increased 23.1 percent.

AEM members expect most key farm equipment categories will experience similar growth this year.

Available industry data show sales of ag machinery in the U.S. were expected to climb 21.2 percent in 2021. Growth this year is forecast at 5.2 percent, followed by a 3.4 percent increase in 2023, the AEM said.

"Farm economy looks good this year, I don't see that as being a big issue unless we see a big spike in diesel/petrochemical prices and that may have a negative effect," CEAT's Loethen said, noting that farmers seem to be spending money now.

Loethen said one of the trends he is seeing in the U.S. farm market is the growth in part-time family farms or "hobby" farms run by people who have ditched city life and moved to rural areas. They have been buying less-expensive bias tractor tires for their farms.

"We've seen an uptick in bias (tire sales). A lot of that is because there's a lot of people who decided they don't want city life anymore and want a small farm," he said.

"We have our premium bias tractor rears and that's probably one of the fastest growing segments that we've seen and that's kind of been a reversal of the last 10 years."