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OTR/Ag/Specialty Tires

Yield to Better Profits: Win Ag Business By Offering Tires and Services with the Best Yields

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When Tire Review last looked at the agricultural tire market in August 2004, a weak dollar and poor growing conditions in other parts of the world were stimulating U.S. crop exports. Production demands on the ag sector were relentless.

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A year later, the news is still good. Farmers are enjoying a fruitful harvest with high commodity prices and strong income. And, they are putting that money back into their businesses. Equipment sales have spiked as farmers are investing in new farm equipment.

Deere, for example, reported an increase of 17% in ag equipment sales during the past quarter and a 20% increase over the past six months. “The U.S. farm sector is expected to remain solid for the remainder of 2005,” wrote Deere in its latest report.

There’s evidence, too, that growth will continue beyond this year. “Increases in exports contribute to gains in cash receipts to U.S. farmers and improvement in the financial condition of the U.S. agricultural sector,” according to the Economic Research Service (ERS) division of the U.S. Department of Agriculture. In a report released in February, the ERS said: “The value of U.S. agricultural exports is projected to grow from $56 billion in fiscal year 2005 to $78.6 billion in 2014.” The ERS placed agricultural income projections for the next decade at an average of $61 billion, much higher than that of the 1990s.

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But, there’s always a catch. While the ERS forecasts growth in farm income, others predict that increasing expenditures, coupled with rising oil and fuel prices, will eventually take a toll.

“Farmers in North America need to produce more, but, at the same time, lower their costs,” says Bill Schafer, vice president of marketing and sales for the ag division of Michelin North America (MNA). “They need to become more productive and efficient.”

Where Tires Come In

So, how do these trends affect ag tires? For starters, any independent tire dealer serving ag tire customers needs to know some key facts. First, availability is one of the most important issues affecting ag tire sales. Second, service is paramount. And, “service” means more than mounting and repair. It’s about problem solving.

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This is not just news for newbies. Even an ag tire dealer with years of experience in the market may have to adjust purchasing, inventory and service strategies to fit present-day demands.

It’s all about knowing what ag tire buyers want. And, that can be summed up in two words: “More yield.”

Stock the Essentials

Productivity-enhancing tires can generally be found on the newest farm implements. As stated earlier, equipment manufacturers such as Deere are ramping up production of high-end machines to meet higher demands. And, tire manufacturers are scrambling to put new tires on those machines.

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“Due to the strong equipment sales for both tractors and self-propelled combines, ag tires are enjoying very high sales,” says Jeff Wilson, marketing manager for the Firestone Agricultural Tire Division. “Several tire manufacturers are struggling to meet the unprecedented demand for ag tires.”

But not all ag tires are equally in demand. Scott Sloan, vice president of engineering and technical services at Titan Tire Corp., pinpoints two of the most sought after ag tire types: taller, narrower tires to address reduced row widths, and larger, wider tires for heavier equipment. “It appears as though the demand for bigger and stronger tires will continue to grow as larger, more demanding equipment is introduced,” says Sloan.

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In fact, “there appears to be some concern over the availability of some of the larger-diameter tires,” Sloan adds. “The OE business was strong in the first half of 2005 as orders for new tractors, and fear of shortages in large-diameter radials, sparked increased demand.”

Less is More

Buying larger, more powerful equipment is only one side of the productivity equation for farmers. There are many other ways in which farmers are producing more with less. Ag tire customers want tires that help increase fuel efficiency and ride comfort, provide sufficient traction and, most importantly, reduce soil compaction.

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Tony Moore, ag sales development manager for MNA’s ag tire division, says that soil compaction can significantly affect yields. And, for farmers, yield is money. “Compaction reduces the soil’s ability to hold moisture and also lowers its permeability,” Moore says.

One solution for minimizing compaction is running tires at low inflation pressures – as low as 6 psi, says Moore. Ag tire customers will be impressed by a dealer who includes solutions for minimizing compaction as an extension of an overall mechanical service offering.

Moore meets personally with ag tire dealers and their ag tire customers to recommend the right inflation pressure for a particular piece of equipment. He brings portable scales to each farm and weighs each tractor axle to determine the lowest pressure at which the tire can function while still carrying the load.

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“The flatter and wider footprint resulting from reducing tire pressure distributes pressure on the soil more evenly, reducing compaction,” says Moore.

MNA is producing ag tires with the distinct purpose of helping farmers produce more at lower costs, Schafer notes. One example is MNA’s UltraFlex technology, already available in Europe. Schafer expects UltraFlex to hit the North American OE market soon.

UltraFlex, according to Schafer, allows farmers to operate tires at lower air pressures, thus widening the tire’s footprint. And, a wider footprint results in better stability and traction and helps reduce soil compaction. “Reducing air pressures, increasing footprint and reducing soil compaction will help farmers be more productive,” says Schafer.

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Radialize It

Radial tires are particularly adept at reducing compaction, says Moore. They are also better able to handle lower pressures and heavy loads, he says.

Equipment manufacturers know this, so, yet again, the OE channel is driving replacement as new farm machinery is equipped with radial tires, notes Schafer.

“There is also a trend towards radial R1W tires that have deeper lugs for increased traction and productivity,” he says. R1W is a designation created by the Tire and Rim Association. These tires help reduce compaction because of their traction capabilities. “Slippage leads to soil compaction,” explains Moore.

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Schafer expects radialization to grow fiercely over the next few years. Currently, the radialization rate in the ag tire market is only about 30%, he says. But that will change. “Farmers are equipping new or existing machines with higher-technology products such as radial tires,” observes Schafer.

Wilson agrees. “Radial tires are in big demand due to their superior load-carrying capacity, larger footprint and less compaction,” he says. “A tire dealer can secure profits by having the right tires that the farmer needs in inventory.”

Additionally, “large-diameter radials, sprayer tires and heavier-ply wagon tires appear to be growing in popularity,” says Sloan. “Some of this is being driven by OE demand, and some is driven by people attempting to solve a specific problem or concern.”

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Helping to solve those problems or concerns is where an ag tire dealer can be most successful. Start by understanding the local ag market and assigning certain staff members to the ag community, Schafer recommends.

“Our most successful tire dealers have people dedicated 100% to ag tires,” he says. “Service is the key driver for dealer success in the future.”

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