, ag tire dealers hurt. The market for ag tires depends directly on the strength of the larger agricultural economy, which, to say the least, has not been favorable. Continuing farm consolidations, more imports and fewer exports combined with steadily declining crop prices have hurt the farm economy. As if these conditions weren’t enough, farmers also had to suffer through the fuel-cost spikes of early 2001, the drought of 2002 and the high fertilizer costs of 2003. Their futures grim and efforts fruitless, farmers turned to government subsidies to make ends meet.
A Budding Recovery?
Today, though, it appears something is starting to grow again in the once-infertile ag market. Thanks in part to a weak U.S. dollar and poor growing conditions in many other parts of the world, crop exports from the U.S. appear to be increasing. This higher demand has allowed farmers to raise crop prices. Those higher prices should, in turn, lead to greater cash receipts for the producers – the farmers.
What will farmers do with their extra money? Perhaps they’ll buy new equipment (with new tires) to handle increased production demands or upgrade their old equipment (i.e., replace the tires and wheels). And that means better OE and replacement sales, and new service opportunities for the ag tire business.
That’s precisely what experts have been seeing lately. “The farm economy is strong and will continue to be strong for quite some time,” says Jeff Vasichek, general manager of farm tires at the Goodyear Tire & Rubber Co. ®It seems we are in an up cycle with our OE partners and also with replacement,® he continues. ®Commodity prices are up in response to pent-up demand, and farmers are finding more cash to replace their older equipment.® Vasichek adds that Goodyear has hired on more employees at its ag tire plant in Freeport, Ill., to keep up with increasing demands.
Jeff Wilson, marketing manager for the Firestone Agricultural Tire Division, reports that agricultural commodity prices are up. “Soybean prices are at 30-year highs right now,” he says, adding that ®demand for corn and corn acreage is up, too, due to the use of ethanol as a certain percentage of gasoline.®
Ethanol, a byproduct of corn, is increasingly being used as a fuel additive because it reportedly results in cleaner emissions. Wilson also says there has been tremendous growth in the use of soybean derivatives and demand for livestock feed. Both trends positively affect the farm economy.
And, Ken Allen, director of export sales at the Firestone Agricultural Tire Division, goes so far as to say that “some crop commodities are depending on nearly ideal harvests to avoid rationing.” That may seem like an exaggeration, but the Economic Research Service (ERS) arm of the U.S. Department of Agriculture forecasts that 2004 will be a record year for crop value, which should reach $116 billion.
The ERS also states that soybean production this year is forecasted to increase by nearly 20% from 2003. “Receipts from corn and soybeans – the two top-ranked crops ®“ are both expected to be up about 16%,” reports the ERS. In addition, the agency says, ®the 2003 average corn yield is expected to rise to 142 bushels per acre, pushing production to a record level.® Perhaps not surprisingly, the ERS also predicts average wheat yields rising this year, as well.
Adding more fodder for the market to feed on, total production expenses for farmers are expected to rise only modestly this year, compared to the double-digit percentage increases seen in 2003, according to the ERS. The agency also forecasts the value of farm business assets rising 3.1% this year.
In response to increased production and rising prices, government subsidies to farmers will decrease this year, say the experts. As a result, farming income will become more dependent on the market than on government payments. Knowing this, many farmers want greater efficiencies and more production capacity. And they can achieve that using bigger and better equipment operating at higher speeds.
That’s how Bill Haney, central district sales manager for Trelleborg Wheel Systems, sees it. “There is a swing toward bigger, longer-lasting tires that can handle higher horsepower and flotation requirements,” he says. ®And larger singles are replacing smaller duals.® Farmers aren®™t buying as many tires as they used to, Haney adds, but those they are buying are larger and more expensive.
Industry consolidation, too, is hastening the quality-instead-of-quantity trend. Commonly a double-edged sword in business, consolidation among farm producers has created larger agri-businesses with lower production costs. For the dealer who does business in the ag segment, that means fewer customers – and fewer units to sell. At the same time, however, those few customers are buying higher quality ®“ and more expensive ®“ tires.
Goodyear’s Vasichek also sees the ag market moving more towards radials as well as deeper-tread and deeper-lug tires for longer tread life, less soil compaction, and better ride quality and traction.
Cashing In
The ag market is cyclical, so it’s bound to dry up again. So, how can tire dealers cash in on this budding recovery before it®™s too late? “All farming is based on a window of opportunity,” says Firestone Ag®™s Wilson. ®You®™ve got so many days to get the crop in.® Tire dealers, too, have a window of opportunity to sell ag tires, and that window is opening.
“This is a good time for dealers to be selling these tires,” says Haney. ®A smart dealer should be close to these customers and understand agricultural trends,® he says. Though smaller tire dealers in general tend to be outpaced by larger, full-service operations, there is still room for the small independent dealer who ®has products that customers want and pursues businesses that are profitable instead of chasing unprofitable business,® says Haney. ®It’s about targeting the right customer – looking at the farm size, machinery used and financial reputation.®
“Dealers should anticipate the needs of farmers and carry inventory during harvest time (fall) and spring,” says Vasichek. ®But the number-one asset of an ag tire dealer is service,® he says. With farming’s limited window of opportunity, downtime is not acceptable. To be successful in the ag tire market, ®a dealer must out-service other dealers,® Vasichek insists. That includes providing 24-hour, in-field service.
“‘In-field service’ means the truck pulls right up to the combine, and the tire is changed right there in the field,” Wilson explains. ®It also helps for a dealer to establish a relationship with a local implement/equipment dealer,® he adds.
Another market segment – small farm tires, typically seen on towable vehicles such as farm wagons ®“ presents opportunities. Brian Preheim, product manager for several Carlisle Tire lines, including ag, has seen sales of these smaller tires increase. “I think farmers have a little more money in their pockets, and they are upgrading their equipment or replacing their tires and wheels,” he says. ®Distributors need to have the product in stock to ride the wave,® he adds.
“Stocking wisely and ahead of time is the best advice we can give to dealers now,” says Rami Bitran, vice president of ag tires for Trelleborg. He warns, though, that the farm economy is subject to very unpredictable variables – bad weather, for instance. So, dealers should still approach this market with caution.
Says Bitran: “It looks like a good year, but you never know.”