Titan International dispelled some of the clouds over the
farm machinery market but, unveiling a fall into the red, revealed it had
tripped over weak rubber prices, which landed it with a "material financial hit".
The maker of tyres for agricultural, construction and mining
machinery said it was sanguine over prospects for ag demand, foreseeing that
the "overall farm economy will remain strong" this year.
"We do not see the downturn," said Maurice Taylor, the Titan
chairman and chief executive, who made an unsuccessful run for the Republican
nomination in the 1996 US presidential elections.
While acknowledging declines in crop prices, he said that "it's
still very profitable for [farmers], whether it's corn or soybeans.
"Those are your two big drivers. Wheat is still going to
stay pretty good, too."
Paul Reitz, the Titan president, added that after a year when
the group's agriculture business achieved "good" results, with sales up 9% on a
5% rise in volumes, "we're seeing some good optimistic viewpoints coming from
'Saving on expenses'
The comments contrast with gloomy outlooks from farm
machinery manufacturers, with Deere & Co last week highlighting "moderating
demand for agricultural equipment", and forecasting declines of up to 10% industrywide
in the North and South American markets.
On Wednesday, Macquarie cautioned that its research
suggested that US farmers were "likely to scale back [machinery] purchases as
their margins have been squeezed," with sales of large tractors and combines
appearing particularly vulnerable.
Lower margins in the US and Brazil too "will likely limit
land expansion and see farmers aim to save expenses. Both affects will likely
limit farm machine sales", the bank said.
And separately on Thursday, Nebraska-based Creighton University
said that its index of farm machinery prosperity had indicated shrinkage for an
eighth successive month, falling to its lowest reading since May 2009.
"Equipment dealers and farm equipment manufacturers selling
domestically are experiencing pullbacks in sales and production," Creighton
economics professor Ernie Goss said.
However, Titan may be shielded somewhat from a downturn as
tyres wear out on the equipment which has been bought in large quantities in
"A lot of new equipment have been pumped into the market
over the last few years, and you're starting to hit that tyre replacement cycle
on that," Mr Reitz said.
Nonetheless, Titan reported a loss of $15.58m for the
October-to-December quarter, compared with earnings of $8.18m a year before, a
decline blamed on falling rubber prices.
The decline had caught out Titan, which had bought its
rubber somewhat in advance at higher prices, but felt impelled nonetheless to pass
on declining market values to customers through lower-priced tyres.
"Due to falling rubber prices, the business experienced a
material financial hit in 2013 as price reductions had to be passed on to our
customers and margins were therefore sacrificed," Mr Taylor said.
"Tyres are being replaced at a 30% discount given the lower
rubber prices, therefore companies are reducing inventory to the lowest levels
to replace with cheaper tyres."
Titan shares stood 1.2% lower at $17.055 in afternoon deals
in New York.
The group's quarterly loss was the equivalent of $0.29 a
share, compared with the $0.15-a-share profit expected by Wall Street.
Separately on Thursday, plantations group Sipef forecast that 2014 would "remain a challenging year for the rubber producers", with large stocks set to "keep a lid on prices".