Last January we were looking at three straight years of record farm incomes. Fast expanding crop opportunities and fast-growing export markets brought good news to everyone in the ag chain – from the field to the equipment manufacturer.
And then the rain stopped. Well, it never really started. The Drought of 2012, while nowhere near as epic the 1930s Dust Bowl, still dramatically altered attitudes and plans. And a relatively dry autumn 2012 has farmers on edge about the coming year.
While irrigation systems, “good genetics” and crop insurance helped minimize the damage for farmers, experts say the drought was every bit as bad as described, perhaps worse than imagined, and left ag tire buyers – OEMs and farmers – wary of the near-term.
“Right now, most of the Great Plains and the Southeast are still in serious drought, and parts of the Midwest are still too dry for comfort,” reports Seth Walters, vice president of marketing and supply chain for Alliance Tire Americas. “Everybody will be waiting for snow in the next few months. Few farmers are in a buying mood – an attitude we expect will carry into 2013, when insurance checks and some winter rainfall will hopefully raise optimism again.”
“As the summer progressed and conditions became worse, we saw a definite pause in our replacement market business, especially on harvest related tires,” says Tom Rogers, director of ag tire sales and marketing for Bridgestone Americas. “Understandably, growers were not buying tires where drought conditions existed. As we look into 2013, we see overall net farm income still very strong and all indications point to a good year in the ag tire business next year.”
Bill Haney, sales manager for BKT Tires USA, says that the “main impact on 2012 was replacement tire shipments were slowed down during the third quarter, and inventories were high. This means availability will be good during the spring 2013 period.”
Michelin North America’s James Crouch, farm segment marketing manager, says that even with the drought, heading into the close of 2012 “farmers are still projected to have the second highest net farm income year ever due to high commodity prices and land protected by crop insurance. New equipment sales continued to be strong throughout 2012, and the downturn in the replacement tire market is expected to reverse in 2013 as farmers reinvest in their business, and dealers continue to work through their inventories.”
“It appears that although OE orders and shipments remained pretty strong through the 2012 fall, it was more than likely from orders that were placed and financed several months prior,” offers F.A. Jenkins, president of Mid-USA Tire, a distributor of Petlas brand ag tires. “Equipment orders may have been placed upwards of 12-plus months ago. It is rumored that several newer orders were canceled due to the drought conditions that covered a large portion of prime agriculture production regions, especially on larger tractor and harvest/combine equipment.”
Skip Sagar, sales manager for Titan Tire Corp., concurs with his colleagues on the impact of the Drought of 2012, and suggests at least part of 2013 looks good. “Looking into 2013, OEM schedules for production of farm equipment seem to be pretty strong. The second half of the year is anybody’s guess. There were some availability issues during 2012, so we believe there’s quite a bit of pent-up demand. When some of the uncertainty goes away and the growers receive their crop insurance payouts, we anticipate an increase in spending on replacement tires.”
It’s obvious, though, that caution will be the watchword for 2013. No one can predict the weather, and Washington has to tackle both an important Farm Bill (stalled in Congress)and negotiate a long-term resolution to our fiscal and debt problems.
More Important ThanEver
Even though the Drought of 2012 is over, only the calendar has changed and it’s certainly not business as usual anymore. Dealers will have to get back to a more consultative sell, experts suggest. “It’s a perfect time for dealers to be selling return on investment,” says Walters. “Farmers are under pressure. They’ve seen commodity prices go up, but they’ve also seen all their costs go up, too. They need confidence that their tire supplier is providing service and a long-term relationship he can trust in good times and bad.”
Jenkins suggests that strong new equipment sales over the past few years opened the door to some new tire players, giving dealers new options. “The heavy OEM focus with the major brand producers has allowed new import manufacturers to enter the market and gather up some replacement marketshare.”
Trends and Planning
While the drought captured the headlines, the biggest “variable” has been the Farm Bill, legislation that governs everything about the farm economy from subsidies to crop insurance to research programs.
“Federal programs have a big impact on planting decisions, dairy profitability, and other aspects of agri- culture,”says Walters. “Farmers watch that carefully for a sense of how secure their safety net is, and so do their bankers. Congress was clearly willing to gamble with the entire farm economy as the election approached – and that didn’t help anybody’s attitude.”
From a trend standpoint, BKT’s Haney says, “farmers are managing income increases by keeping debt down, making land purchases, and general improvements to their own personal financial planning. They are tending to be thoughtful about equipment purchases to better manage this recent increase in income.”
“As input costs continue to increase, farmers are being more efficient,” says Bridgestone’s Rogers. “This is driving the precision farming trends, equipment purchases and tire choices. We are seeing farmers maintaining proper tire inflation, and specialized and higher capacity equipment are making growers more efficient, which is driving demand for application specific and higher load capacity tires.”
Precision farming techniques and technologies have fully captured the attention of today’s farmer, according to Mid-USA Tire’s Jenkins. “Precision farming is leading OE equipment purchases,” he says, and that will impact later replacement buys.
While farmers are concerned about what’s happening in North America, they’ve also become global in their viewpoints, according to Sagar. “We always have to consider the fact that we live in a global marketplace. China is stockpiling soybeans, which impacts exports, and therefore, prices. Roughly 55% of the soybeans grown in Iowa go to export. So, a lot of what we see going on globally will have a direct impact on our exports.”
The national attention on “renewable fuels is an important factor, too,” he says. “Roughly 40% of corn production in Iowa goes toward renewable fuels. So, any legislation on renewable energy production will profoundly impact agriculture in some states.”
Latest and Greatest
Performance in the field is always the key issue for crop farmers. As one expert said squarely: Performance and value never go out of style.
“That said, the big story of the past year or so is definitely flexion – IF and VF tires,” says Alliance’s Walters. “The benefits are really impressive – IF tires can carry 20% more load at a given inflation pressure, or operate under a particular load at 20% less inflation pres- sure, compared to a conventional tire of the same size. That gives farmers the flexibility to haul bigger loads or to manage their inflation pressure to reduce soil compaction.”
Bridgestone’s Rogers and Michelin’s Crouch concur. “Equipment is becoming more and more specialized and capacities keep growing as farmers look for ways to become more efficient,” says Rogers. “This is driving demand for application-specific tire designs and higher load capacity tires. Growers are looking for the best of both worlds, more load capacity but at a reduced inflation pressure to minimize compaction.”
Vital, says Crouch, are tires that “enable the farmer to carry the same load at a lower air pressure than the standard tire, offering IF and VF class tires in many of our market segments. With the lower pressures required in these tires, the farmer is lighter on his field and experiences less yield-robbing soil compaction, improved traction and longevity of the tires.”
“At the moment, there’s nothing so different or so new that dealers can’t service these tires with their existing equipment,” suggests Scott Sloan, Titan’s product engineering manager. “Dealers need to continue to stay informed on these new technologies in order to recommend the right tire for the job. We also want dealers to be very vocal about any issues local farmers are having with tires, because we’re striving to take much more of a solutions-based engineering approach.”
From the dealer side, says Rogers, “knowledge and service are still key. Providing extended seasonal hours and having in-field service capabilities are critical; having the training to understand specific applications earns a customer trust and makes that dealer the expert in his area.”
“The best thing a dealer can do is to sell the right tire for the job and make all the appropriate recommendations for proper inflation and use,” says Walters. “Deliver a timely response when problems arise. And give good, honest advice, whether it’s repair or replacement. There’s no quick patch for broken trust.”
