For many years going forward, this cautious buying approach will be the norm.
February 4, 2009
For several months now, there has been one topic dominating all conversation among ag retailers — the state of the fertilizer market. In this issue, you will find the text of a roundtable discussion we conducted with several fertilizer insiders to find out what happened and where we go from here.
Sitting in on this discussion, I was struck by this pattern of rising and falling fertilizer fortunes — and how unavoidable it seems. AgriServices of Brunswick’s Bill Jackson compared the industry to a duck that, having survived a shotgun blast over a particular pond, will fly back over that same pond again and be shot.
Although I like this analogy, the plight of today’s fertilizer marketplace reminds me more of the instructions I once read on a bottle of shampoo: Lather, rinse, repeat.
Right now, ag retailers and fertilizer suppliers are in the lather phase — as in their lather is up. During the first part of the decade, both of these groups spent a lot of time buying up lots of fertilizer as early as possible. Logistics challenges, with much of this nation’s fertilizer coming from overseas sources, meant companies that waited to order their supplies wouldn’t necessarily have it on hand when grower-customers came calling.
For these retailers and suppliers, it was a no-brainer to buy early and often, which is what they did throughout the summer of 2008 when fertilizer prices were at their peak.
Then came the crash. Prices dropped very quickly. These same early buyers were now left with large inventories of fertilizer that no longer had large value. The lather was certainly up.
Today, we are entering the rinse phase. This is where ag retailers, burned by past practices, will attempt “wash the slate clean and start over” with a new plan of action. Those that regularly purchased 50% to 60% of their fertilizer supplies early will wait, buying maybe 20% to 25% instead to lessen their risk. For many years going forward, this cautious buying approach will be the norm. Inevitably, the marketplace will stabilize and the risk factor will gradually fade away.
Ultimately, somewhere down the line, a retailer — feeling confident in market conditions — will go back to buying large amounts of fertilizer early. He will make a lot of money doing so, and other retailers will quickly follow suit. The repeat phase will be upon us.
When Jackson was asked about today’s fertilizer mess, he pointed out how similar this state-of-affairs was to the one that occurred during the early 1970s that wiped out profits for the rest of the decade. “We haven’t learned a damn thing,” he said of today’s fertilizer marketplace.
With apologies to Bill, I’m hoping he is wrong. Retailers today seem to be a no-nonsense, intelligent bunch with plenty of business smarts. Hopefully, the 2039 CropLife® fertilizer roundtable won’t still be asking “what happened?” when it comes to fertilizer.