2013 Ag Retail Outlook: Consolidation, Drought Among Topics To Watch
Agribusiness expert David Downey outlines the biggest topics to watch for in 2013.
February 4, 2013
Fresh from serving as the primary educational session coordinator at the Agricultural Retailers Association annual meeting in December, noted agribusiness consultant and Purdue University professor emeritus Dr. David Downey shared his top-of-mind, post-conference thoughts and observations.
Drought impact. We are set up well financially, as crop insurance has put a lot of dollars in farmers pockets and is primarily why we expect a good year this year. But that could have some significant implications for next year because we are starting into the winter season highly dependent on some winter snows and rains. Last year we had soil moisture going into the season that set things up well, but unless we get a lot of good rains and snows this winter we will not have the same situation going into 2013.
Market volatility. This is an issue that continues to gnaw at us. It has settled down a little recently and I don’t anticipate major swings in 2013 like we had three or four years ago. But there is still going to be volatility because we are facing an increasingly active global market where the prices react quickly to all sorts of political, natural and industry issues. However, it seems clear that wholesale price volatility will continue to be on a new higher plateau that a few years ago. New sources of natural gas from fracking operations and new U.S. production facilities for NH3 will introduce new dynamics, but not in the immediate future.
Profits from traditional patterns of higher in-season retail prices and gains from inventory appreciation have become far less predictable, forcing ag retailers to give a lot more attention to managing their risks. This includes passing more of the price volatility risk on to the farmer who has more risk management tools available to them through their grain marketing strategies.
While commodity prices are at near record levels and the outlook continues to appear very favorable for the near future, there is legitimate concern about a wide variety of market conditions that might cause commodity prices to fall, placing many farmers into a very difficult position. And then there are all sorts of other risks like weather, disruptive terrorists activity and government policy changes.
Consolidation of large farms. High commodities prices have left many farmers flush with cash that they want/need to invest. Further, the robust farming economy is attracting a lot of new money from investors. In spite of soaring land prices and ballooning multi-year farm lease agreements that frighten more conservative farmers, we continue to see rapid consolidation of farms. Many of these larger operations are reaching the point where they think and act like industrialized businesses. They are becoming big enough to provide many traditional agronomic services themselves. Some farmers perceive, at least initially, that they can get the job done more efficiently and have better control over quality and consistency.
Many large operations have different business models that require ag retailers to rethink how they create value – value that often is based on using agronomic information to squeeze out better yields at a lower cost-per-bushel and to gain efficiency through logistics, consistency of service and sophisticated business practices. As Carl Casale, CEO of CHS, put it in his keynote address at the Agricultural Retailers Association conference, ag retailers must carefully and rapidly adjust to this new reality if they are to remain ‘relevant.’
Understanding the customer better. We are seeing a trend in better management of customers, using various form of Customer Relationship Management (CRM) tools. I must admit my bias toward using CRM systems. They allow ag retailers to manage relationships with customers through multiple locations, working with large customers who farm multiple units as well as their traditional customers. And with the continuing consolidation of farms, this allows them to coordinate activities to utilize their resources much more effectively. We are just beginning to learn how to collect and use information to coordinate multiple activities with our customers and there is rapidly growing interest in doing this right. Over the next three to four years we are going to see significant improvements in the ag retailer’s ability to monitor what’s going on with customers.
Customer segmentation is becoming much more critical to success. Some farms will continue to want high levels of service, but there will be an increasing number that hire their own agronomist and look to the retailer to be a dependable supplier of commodities and that is much more transactional.
This means more ag retailers assigning the right salesperson to specific customers who have the technical skills to work appropriately with each customer. Some are better with relationship selling, while others are better at technical and/or business relationships.
Precision needs improvement. Precision agriculture continues to grow in importance. Nearly every ag retailer touts their own brand of precision ag as a differential advantage. But the reality is farmers perceive wide variation in the extent and quality of precision ag service that is available to them, or that they are willing to pay for. It is easy to own a piece of variable rate equipment and promote precision ag. But it is quite another thing to have in-depth information and a control system embedded into the total management systems for customers who depend on the ag retailers expertise and technical competency as an integral part of their monument process. Getting results is about getting the details right, management systems, integrating information into the fabric of the customer operation and becoming the customer’s trusted advisor. This requires a major commitment and is a long road to travel. Committed ag retailers are seeing good results and are learning rapidly how to make it work for both them and their customers.
Dr. Downey is professor emeritus and executive director of the Center for Food and AgriBusiness at Purdue University.