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Continued Growth: Ag Tire Market Still Strong Despite Economic Downturn

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In 2007, U.S. farmers saw record crop prices and hefty profits. The nation’s growing demand for ethanol boosted the price of corn, while the reduced supply of other crops, like wheat and soybeans, fetched higher than average prices, as well.

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That strong income resulted in farmers putting their money back into their business through land, seed, fertilizer and equipment purchases. And despite an economic slowdown in 2008, the farming industry still remains relatively strong.

“By October, many crop prices had fallen by 50% or more, particularly soybean, corn and wheat,” says Manny Cicero, president of Alliance Tire USA. “However, crop prices today are still high compared to historical levels, even though they’re about half of what they were a year ago.”

These factors only add to the need for agricultural tire dealers to be up to date and knowledgeable about their market. By keeping on top of inventory management, customer service and the latest ag tire trends, dealers can capitalize on this profitable market segment.

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Strong Demand
The booming farm business has kept ag tire sales growing steadily in recent years, and many manufacturers have made significant investments both in increasing capacity and improving dealer service at a local level in North America.

“The demand for large farm tires has been very robust and that’s going to continue,” says Titan Chairman and CEO Morry Taylor. “Titan has made increases in curing capacity for large radial tires, since the market has been moving toward tractors with larger tire sizes. We added 10 new 130-inch curing presses in our facilities.”

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Titan has said the presses will be installed by the first quarter of 2009, with the ability to install an additional 10 presses in the second quarter if demand warrants.

“I don’t expect there to be any shortages in large tires due to that added capacity,” Taylor adds. “Also, with raw material prices dropping as they currently are, I don’t see any price increases in the near future.”

“Agricultural tire sales are not suffering from the downturn that is affecting passenger, light truck or commercial tire sales,” says Jeff Jankowski, director of sales of agriculture and forestry tires for Trelleborg Wheel Systems Americas. “Farm tire sales have grown very nicely over the last 12 to 18 months. We anticipate that to be the case as we head into 2009. So far our customers’ orders for radials for the spring planting season are very strong.”

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In speaking with the major tractor manufacturers, Jankowski says their order books for new equipment in 2009 are full. As a global supplier to these OEMs, Trelleborg is also investing in increased capacity for extra large radial tires (38-, 42- and 46-inch sizes), which are produced in the company’s Tivoli, Italy plant.

“All indications we’ve received from key OEMs have been a continuation of strength into at least 2010,” says Alliance’s Cicero. “We’re preparing for a more volatile year in 2009, but still one we consider will be a strong year for farm products.”

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With the company’s change of ownership in 2007, Alliance also changed its operating strategy in North America and its production capacity worldwide. The tiremaker invested $35 million for increased production at its plant in Israel, and $100 million for a new plant in India, which has already broken ground and will start production in the second quarter of 2009, Cicero says.

“By the end of 2009, our capacity will be close to double what it is today,” he says. “We think there will be a demand strong enough to support that. Not only is the North American market strong, so are the Latin American and European markets. Globally, demand has outstripped supply.”

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In the U.S., Alliance has focused on improving its infrastructure and service to its dealers. “We’ve built up our infrastructure here as far as marketing, technical, field testing and product development aspects in North America. We have people on the ground looking at North American needs so we’ll be able to better service our dealers with sophisticated products that are very application-specific,” Cicero says.

The company will also begin stocking tires Jan. 1 at its new warehouse just outside Nashville, Tenn.

The Dealer Level
All this current and projected growth means that right now is a pretty good time to be an ag tire dealer. Entering or maintaining a presence in this market, however, still requires quite a bit of effort on the dealer’s part.

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“Service is always key, but when you get into this higher-end merchandise, there are some specifics that must be adhered to as far as application,” says James Tuschner, Alliance’s marketing manager. “Dealers need to be aware, knowledgeable and trained on where these specific tires go and what crops and applications they’re to be used for. Dealers need to be very well-versed in the product they’re supplying and make sure they can give a farmer the best fitment for that particular application.”

The main focus for farmers is yield, which translates to minimal downtime. Dealers with mobile service trucks who can go out to farms to repair or replace ag tires will dominate in this market, Jankowski says.

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“Dealers need to invest in the proper equipment to be able to handle and service those tires in the field. It’s a lot harder to handle a 48- or 54-inch tire than it is a 20- or 30-inch tire,” Cicero says. “In terms of the size and weight of tires, this market segment is becoming more like the OTR market, where the sheer act of handling these tires requires special equipment.”

“For example, service trucks have a certain capacity they’re able to haul around, and when you get over a certain size or weight of tires, dealers aren’t going to be able to do so without upgrading to a larger truck,” Tuschner adds.

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Another key to success in the ag tire segment is knowing what dealers in your area need, and having the product at your fingertips when they need it.

“A farmer doesn’t care about tires, he cares about yield. And during the season, these pieces of equipment get used night and day, so a farmer can’t afford for them to be down,” Cicero says. “Having the right set of tires plays a key role. Dealers need to recommend the right product for the job, and then be able to handle that service call when and where a farmer needs it.”

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Because crops and soil conditions vary so widely from one region to another, there is no simple answer for dealers as to which types and sizes of ag tires to keep in their inventory, Titan’s Taylor says.

“The successful dealer has to know what the crops in the area are, what kind of tires work best with those crops, and what kind of equipment local farmers are using,” he says. “Take the time to go to the local co-op, or wherever else your customers will be, and talk to them to see what their needs are.”

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Another thing to remember, according to Taylor, is that farmers not only buy tires for farming equipment, but also for pickup trucks, cars and any construction equipment they may own, “so this is a valuable customer for a tire dealer.”

“There are a lot of tire dealers out there who don’t strongly focus on ag tires, because their main concern is passenger and light truck customers,” he notes.

“But I think the dealers that look at this as a core business will, over time, build this segment to be a very profitable part of their business.”

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Changing Landscape
In order to prosper, tire dealers in this segment also need to follow industry trends. As tractors and other farming equipment get larger and offer higher horsepower, ag tires must follow suit.

“Equipment is not getting smaller – it’s getting bigger and bigger each year, and with higher horsepower,” Cicero says. “And likewise, tires are getting larger and more sophisticated. That puts pressure on the dealers, who are the link between the farmer and the manufacturer, to be able to understand the changes in technology as far as tires and equipment.”

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The higher horsepower tractors require extra large radials, a trend dealers need to keep in mind when managing their inventory and placing orders.

Tire manufacturers are also making great strides in producing rear tractor tires that reduce soil compaction, a key aspect to increasing farmers’ yield. Tires with a flat, wide footprint tend to distribute pressure more evenly over soil. Ag tire customers will be impressed by dealers who are up to date on which models offer the most beneficial footprint to suit their needs, as well as offering other solutions to increase yield and minimize downtime as an extension of their overall service portfolio.

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Another trend in the ag tire market is the shift to radialization. The demand for radial tires – which are more beneficial in reducing compaction and better able to handle heavy loads – has far outstripped supply the past couple years.

“Bias is still a viable product in the marketplace and will continue to be, but the shift certainly is going to radials, just like it has in other market segments,” Jankowski says.
“Currently, roughly 55% to 60% of the replacement market is bias. Radials have gained ground and will continue to gain ground because the tractors being built today require extra large radial tires.”

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The shift to radials will be aided by manufacturers’ increased production of these tires, says Cicero. “I think if there had been more radials available up to this point, there would have been a faster shift. Because of the scarcity of radials, bias tires have remained very popular.”

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