The 2018 Fertilizer Outlook from the Distribution Level
Can the crop nutrients marketplace expect a better time during the 2018 growing season? This is what a lot of the nation’s top ag retailers are probably wondering following another rough sales year in 2017.
For the past four years now, the fertilizer category has had a hard time showing some positive numbers. In fact, according to the past two CropLife 100 surveys, the fertilizer category has lost a combined $2.4 billion in market value since the end of 2015. Market share among all crop inputs/services — which stood at almost 50% not too many years ago — now stands at 41% and dropping.
And according to Dave Coppess, Executive Vice President of Sales and Marketing for Heartland Co-op, West Des Moines, IA, the primary reason the fertilizer category has experienced these consecutive down revenue years ties back to something very elementary — money. “Farm economics continue to be very challenging for farmers to turn a profit,” says Coppess. “Convincing farmers to purchase products and quantities to assure a return-on-investment (ROI) vs. the last dollar spent will be our greatest challenge — especially on rented ground, in which they have limited interest in building soil health and nutrient levels.”
Hoping for a Better Year
Like other ag retailers, Heartland Co-op is going into the 2018 growing season with its corporate fingers-crossed, so to speak, that market demand for fertilizer will improve. But Coppess adds the company will also be cautious. “We anticipate fertilizer sales to be good, yet we will continue to follow the trend of lower nutrients per acre being applied,” he says.
Other ag retailers are taking a similar approach (and view) to the fertilizer market for 2018, seeing both positives and negatives potentially playing out. “It feels to me like we are looking at a relatively flat market for 2018,” says John Christian, President of Green Valley Agricultural, Wayland, MI. “I see that as a positive. Farmers know they can’t neglect fertility, but they aren’t looking to do much in the line of soil build-up either.”
George Secor, President/CEO of Sunrise Cooperative, Fremont, OH, agrees with this outlook for the year ahead. “[The fertilizer market will be] negative from a standpoint that most customers don’t feel that the price has fallen enough in relation to grain prices,” says Secor. “[It’s] positive from a standpoint that they did fall enough last summer that the farmers that locked in fertilizer prices and forwarded contracted next year’s grain production saw a ratio of fertilizer prices/corn prices that has been the best in a long time.”
Tim McArdle, Vice President for BRANDT, Springfield, IL, is slightly more upbeat, given how well the company did during the 2017 fall fertilizer application time frame. “The outlook for fertilizer in our area is slightly positive,” says McArdle. “Most of our phosphorus and potassium is applied in the fall and we had good rates applied.”
In terms of the macronutrients themselves, ag retailers, not surprisingly, believe that nitrogen-based fertilizers will have the strongest market potential for the 2018 growing season. According to McArdle, this will be particularly true if the USDA projections for corn plantings are in line with reality.
“Nitrogen is closely aligned with corn acres,” he says. “Nationally, if we have 91 million acres of corn, nitrogen should be strong. We had a robust and long ammonia application season in the fall of 2017. We expect our urea ammonium nitrate (UAN) tonnage to be average.”
Green Valley’s Christian agrees. “Farmers won’t skimp on nitrogen,” he says. “[It’s] just too risky.”
On the flipside, ag retailers that talked with CropLife® magazine believed that phosphates of all types could have the roughest chance for increased volumes/sales in 2018. “Phosphorus and potassium levels will continue to be ‘mined’ from the soil reserves — especially on rented ground,” says Heartland Co-op’s Coppess.
Sunrise Cooperative’s Secor concurs, adding that in key agricultural states such as Ohio, Illinois, and Iowa, crop nutrient run-off concerns will continue to shape grower-customer fertilizer applications. “As far as going worst, I would say phosphates with all the 4R information,” he says.
Challenges for a New Year
When it comes to the biggest market challenge facing crop nutrient growth in 2018, Secor believes this will tie back to how the agricultural business tends to run these days, not to mention the pace. “Retailers will have to have the supply, the equipment, and the people to meet the ever-increasing speed of the farmer,” he says. “Then, on top of that, we need to have the expertise to help the farmer utilize all the variable-rate equipment of seed and fertilizer and how the farmer needs to use that differently on every acre, efficiently.”
Then, of course, there’s the growing threat from alternative suppliers such as Farmers Business Network. This, says Heartland Co-op’s Coppess, is making waves across the entire ag retail landscape when it comes to all crop inputs. “I expect ag retailers will continue to shave down their retail margins to try and attract, or even retain, fertilizer business in 2018,” he says. “New business models are emerging with more pressure on direct-ship economics that offer a lower cost to the grower. Farmers are leveraging their full-service dealers with direct-ship quotes to get lower input costs and still retain higher service levels. It’s not a sustainable situation.”
As for the macronutrients themselves, there are a few wild cards that ag retailers should keep an eye on to gauge how well or poorly the marketplace might perform. According to Sunrise Cooperative’s Secor, one of these is imports. “Fertilizer is a global business,” he says. “If we do not get enough imports, mainly nitrogen, into the U.S. before spring, the run-up in price could be big. If we get all the imports they are talking about, then the price drop during the spring will be big. Either way, inventory management will be huge this year!”
Finally, there’s the potential fallout from the new tax laws passed by Congress during December. According to Heartland Co-op’s Coppess, tax management has always been an important component driving grower-customer purchase decisions. Therefore, any changes in the tax laws that impacts this could change buying habits for the 2018 season.
“The new tax reform bill still has many unanswered questions that may impact growers’ decisions concerning purchase timing,” he says. “[This could impact] the dollars they spend on fertilizer.”