Answering What Comes Next

Fertilizer RoundtableLet’s face it — the U.S. fertilizer industry has never had a rollercoaster ride quite like the one it experienced during 2008. For most of the year, fertilizer prices stayed high, buoyed by record-high demand, surging prices of commodities, and unprecedented amounts of corn going into the ground. To hedge their bets and assure supply, many retailers and grower-customers bought fertilizer during the height of the price spikes during the summer months.

Then, during the fall, the bottom dropped out. With little fall application taking place and international markets not making purchases, fertilizer prices began to fall and kept right on falling through the end of the year. For example, sulfur was selling for more than $800 per ton in August. By the end of December, this same amount could be bought for around $50. Obviously, this represented a huge sales loss for retailers holding large amounts of fertilizer, reportedly leading to hundreds of millions of dollars in writedowns being taken as 2008 drew to a close.

Of course, the question on everyone’s mind now is simply this: Where do we go from here? To find out, CropLife® Editor Eric Sfiligoj sat down in early January with several key industry experts. Attending this roundtable discussion were Seth Ricketts, president of Ricketts Farm Service in Salisbury, MO; W.P. (Bill) Jackson, general manager for AgriServices of Brunswick LLC in Brunswick, MO; and Ford West, president of The Fertilizer Institute in Washington, DC. This group was brought together by Steve Taylor, executive director of the Missouri Agribusiness Association. Also on hand was Rex Martin, state government relations manager for Syngenta Crop Protection, who weighed in on how the uncertainty in the fertilizer marketplace was impacting the crop protection field.

CropLife: What were the lessons learned from 2008?

Ford West: We have to keep growers informed about what’s going on in fertilizer. Clearly, 2008 was a watershed year for fertilizer simply because a lot of people around the world woke up and realized that if we are going to produce the food we have to produce, fertilizer is going to play a key role in that. I think fertilizer became a strategic commodity. Everything fell off the table since September, but that role for fertilizer in the world’s food production is still there.

So what I think happened in 2008 from our standpoint was growers hadn’t really paid much attention to fertilizer. It was cheap and plentiful, had always been there. But in 2008, we gave a lot of speeches about the global fertilizer business, trying to educate growers about the fact that we as a country import half our fertilizer, who are top competitors are in the world market, and what are the challenges that retailers face in trying to get that fertilizer to their farms.

So going forward, we have to continually educate growers about the changes that are taking place in our world and what’s going to have to happen as we come out of this with the relationship between dealers and growers because of the risk in the marketplace now at the dealership level.

Seth Ricketts: Seems to me that one of the main lessons I’ve learned from 2008 is that we retailers are going to have to formalize some of our dealings with growers. Handshakes are great, and I know that would be our preference as our way to do business, but we’ve gotten along in the past with loose agreements with our customers. That was acceptable when we didn’t see this kind of volatility. Now that we see the potential for this volatility, I believe to protect ourselves as retailers, we are just going to have to have a little bit more formal way of doing business. Whether that means written contracts or something else, we are just going to have to take that measure of protection to make sure both parties are protected.

Bill Jackson: With more seniority in this group today, I can remember the big fertilizer shortages of 1972, 1973, and 1974. And you know, boys, we haven’t learned a damned thing. There were large amounts of money made in those years, and we gave every bit of it back in 1975 and 1976. That went for the supplier, the distributor, and the dealer. I agree with Ford’s comment that we have to have a better understanding. I agree with Seth, too. We’ve been a handshake industry forever, but many of the customers in 2008 that bought high didn’t want to pay high, so that obviously has to change.

CL: So if this is the same situation we saw in the 1970s with fertilizer, why haven’t formal contracts replaced handshakes as a way of doing business until now?

Jackson: For the same reason that when a duck flies by a duck blind and gets shot at, he will probably fly around for an hour or two thinking “I lucked out on that,” and he’ll fly right into another duck blind and get killed.

West: I’ve asked people what’s the difference between now and the 1970s — and it was a short blip. It didn’t sustain itself for long. It was a short spike caused by weather and the energy crisis.

Ricketts: That plays into the other important lesson a lot of retailers have probably learned this year — the importance of layering your inventory. Where in the past, it was pretty safe to take a 50%, 60%, or larger position on your annual needs for fertilizer, after the last few months, that seems real risky. So getting that inventory layered in there at different levels is one of the lessons we retailers are going to use.

Jackson: I’m in the grain business along with the fertilizer business and there, we have an excellent risk management tool, the Chicago Board of Trade. We don’t have that in the fertilizer industry and if there was any one tool that I wish Seth and I had to work with, it would be a fertilizer risk management tool.

There are a couple of companies that are doing swaps — Direct Hedge and FSI. I don’t use either one of them because of the risk involved in the swap system they’ve got set up. You don’t know at the time of the swap who the other party is, and you don’t find out until the swap is over. So you are depending on the credibility of Direct Hedge or FSI to match you up with somebody who can live up to the agreement.

Ricketts: I agree totally with Bill. That is the glaring problem today with the fertilizer market. There’s no way to hedge fertilizer. You can do it with everything else in the commodity market, such as heating oil or corn, but when you take a fertilizer position, you are just crossing your fingers that you can sell it at a higher price than you paid for it.

CL: So who would have to set up a hedging-type program like that for fertilizer?

Ricketts: It would have to be a party that is financially secure beyond reproach. It’s been tried on the Chicago Board of Trade.

Jackson: Yes, they tried that with ammonia futures back in the early 1990s, but there wasn’t any liquidity to make it last.

CL: Based upon everything we’ve experienced in 2008, how do you see 2009 playing out?

Jackson: Well, for one thing, there’s not enough high-priced inventory in the system to service the Midwest corn market this spring. All that stuff will have to be flushed out some time in 2009. But right now, the pipeline is plugged completely full. The best example of that is to go talk to somebody who’s in the barge business and ask them how many barges they have loaded with fertilizer. In some places on the Mississippi River, there are estimates of 400 to 600 barges of urea between St. Louis and New Orleans just sitting there. That urea can be bought for somewhere around $200 per ton, but the owners of that urea want a wire transfer for the money and want the demurrage at $300 per day to transfer to the new owner immediately. Today is Jan. 7, but I won’t be able to move that stuff until April 1. At $300 a day, that just makes that a bad deal. And everybody else is in the same position.

Ricketts: Everyone right now is paying demurrage on these barges. When you are staring at $30,000 to $40,000 between now and the middle of April, you are willing to take a bigger loss on that product than you were before you had to start paying that demerge.

But it comes down to the grower. Right now, the best time to buy fertilizer is tomorrow. When that changes and the best time to buy was yesterday, that’s when this whole thing will break loose.

Rex Martin: The key is the grower. I can’t speak for the fertilizer world, but in the crop protection product world, the industry was coming off a record-breaking year, but expectations will be lower for 2009. We are coming off some really high commodity prices and although they are lower, they are still pretty good. There is some concern about the credit world, but we are still hearing things are OK for growers. But will growers continue to increase or stay the same with their use of fungicide? We don’t know the answer to that yet.

CL: What about the logistics for all this to happen?

Ricketts: The logistics problem in fertilizer extends back all the way to a wet spring and wet summer and late harvest. In spite of that, there could have been a lot more fertilizer put on this fall, but it didn’t get put on because the best time to buy was tomorrow. I think 25% to 40% of the normal amount of ammonia that goes on in the Midwest actually got applied this fall. So that will all get pushed to the spring, and growers will either have to convert to upgraded products or we are going to have a serious logistics problem with ammonia.

With ammonia, there’s just not enough tanks, enough wagons, and enough trucks. That’s going to be the most difficult situation. It’s kind of like when you go to the grocery store. People are upset about the price of food until there is no food. We are going to see the same thing in the fertilizer market. Growers are upset about the price of ammonia until they go to the retailer and he’s out today and it will be a couple of days before he gets another truck in. That’s a very real situation we are going to be looking at this spring.

Jackson: On the dry side, it’s exactly the same. The system’s plugged. To get dry fertilizer, it’s six weeks from the time Seth or I place the order to get it to central Missouri. And that’s just to get it so you can unload it. It takes another week to get it unloaded and applied. Our corn planting is going to start April 1.

CL: Where might we see the most growth in the fertilizer market in 2009 and why?

Ricketts: That will go back to the acre battle and what gets planted. Assuming we have a strong 85 million acre corn planting, I think urea and UAN will have to increase their tonnage. In the fall, there has been so little fertilizer put on as far as phosphate and potash. In conversations I’ve had with growers, they are either going to back off on the amount they put on or just skip this year. They are going to have to catch up on that at some point and deal with the price.

West: One of the things I’ve noticed is the amount of fertilizer production has moved out into the world. Right now, if you stop and look at fertilizer supply and demand, it’s not just about supply and demand here in the U.S.; it’s what’s happening around the world. We import more than half our fertilizer and about 15% of the available fertilizer that’s traded in the world. So we have competition in the world. Take France, for example. France imports about 4% of the fertilizer that’s available in the world, but it’s 78% of their fertilizer need. Growers around the world are wondering what they are going to do. If they decide that today is a better day to buy fertilizer than tomorrow, then things are going to start moving in the world market.

CL: For 2009, what is the biggest question mark and how are you hoping this might be answered?

Ricketts: The thing I worry about most is my relationship with my customers. I told my people that our goal through this situation is to get through it with our customer relationships intact. As much as I hate it, I can handle market losses a lot better than I can handle customer issues. When we’ve seen things like we’ve seen these past four months, I’m afraid we will see a lot of customers changing hands.

Jackson: Credit. My most important asset is my employees. Customers are second. Maybe my credit facility should be third. I can make this thing work if I can keep my banker confident in me. But I can’t make it work without this.

West: Our biggest challenge is we have a whole new educational role with a new Congress. We have to be sure they understand our role in the world and how fertilizer helps in food production. Fertilizer is 40% to 60% of the world’s food production. That’s a big chunk of food, given the dynamics of the world.

Leave a Reply

Fertilizer Stories

Aerial view of the West Fertilizer explosion site
FertilizerFertilizer Companies Blame City For West, TX, Explosion
August 6, 2014
El Dorado Chemical Co. and CF Industries contend the city failed to properly train the first responders and had insufficient protocols in place to battle the April 17, 2013, blaze at West Fertilizer Co. that triggered the explosion. Read More
FertilizerThe Fertilizer Institute: New President, Renewed Energy
February 3, 2014
Chris Jahn relishes the opportunity to lead the organization through the challenging times ahead. Read More
FertilizerA New Cycle For Fertilizer Demand
January 2, 2014
Changes in the corn market could have a major impact on the crop nutrients sector in 2014, say experts. Read More
FertilizerOSHA Hammers West Fertilizer With Over $100K In Fines For April Explosion
October 10, 2013
The Occupational Safety and Health Administration is fining the parent company of the West Fertilizer plant, Adair Grain Inc., $118,300 for 24 violations. Read More

Trending Articles

MAGIE 2014 ShowStopper
EquipmentJohn Deere Again Wins MAGIE ShowStopper Award
August 25, 2014
For the second consecutive year, John Deere was honored at the Midwest AG Industries Exposition (MAGIE) for its new R4045 sprayer. Read More
ManagementExpert To Discuss Farmland Value, Rent At Farm Science Review
August 18, 2014
While cropland values in Ohio increased in the past two years, they have remained flat in 2014, declining in some cases, according to an Ohio State University agricultural economist. Read More
EquipmentAdvance Your Technology IQ At MAGIE
August 13, 2014
The Midwest AG Industries Exposition (August 20-21) is the place you need to be to see, study and evaluate how new advances in the equipment, operations, crop protection and fertility sectors can help your business prosper. Read More
HerbicidesScouting Key To Next Season’s Soybean Herbicide Program
August 12, 2014
When growing soybeans, growers need to think ahead to stay one step ahead of weeds. That means examining weed threats and evaluating which herbicides work best. Read More
StewardshipMichigan Agriculture Leaders On Toledo Water Ban: We Want To Be Part Of The Conversation
August 8, 2014
Leaders of Michigan agricultural organizations said Thursday that the government should not have a “knee-jerk reaction” based on last weekend’s water ban in Toledo due to fertilizer run-off in Lake Erie. Read More
CropLife 100BRANDT Acquires Lemon Ag Services
August 4, 2014
The acquisition of Lemon Ag fits BRANDT’s aggressive corporate strategy of providing superior agronomic advice and services for customers in central Illinois. Read More

Latest News

Seed/BiotechBerendes Joins Verdesian Board Of Directors
September 2, 2014
Verdesian Life Sciences announced that Robert Berendes has recently joined the company's board of directors. Read More
CropLife 100Pinnacle Acquires East Kansas Chemical
September 2, 2014
Ranked 82nd on the CropLife 100, East Kansas Chemical will operate as part of Pinnacle's Performance Agriculture brand. Read More
WebinarsWebinars On Demand
September 2, 2014
Register for one of our upcoming Webinars or access our archive of past Webinars to view recordings of presentations that may be of interest to you. Read More
CropLife 100Pinnacle Launches Performance Agriculture Brand
September 2, 2014
Performance Agriculture complements Pinnacle’s existing brands, including Sanders, the company’s flagship farm input retail brand. Read More
Webinars5 Key Benefits Of Attending A Webinar
September 2, 2014
Webinars can provide ag retailers with a convenient option for gaining knowledge on the latest industry issues and solutions. Read More
Crop InputsBASF Is Betting On A Bright Agricultural Future
September 1, 2014
The crop protection products giant is gearing up for a busy time in agriculture by investing in both product production and development over the next couple of years. Read More
Eric SfiligojAn Erie Feeling For Ag
September 1, 2014
Plenty of water issues have been in the news lately, including the continuing drought in California. Read More
CropLife 100Pinnacle Acquires California-Based Retailer
August 29, 2014
Pinnacle Agriculture Holdings will acquire Kerman Ag Resources, Inc., which will operate under Pinnacle's Performance Agriculture brand. Read More
Allied Cooperative Grain Plant
ManagementArcadia Co-op To Merge With Allied Cooperative
August 28, 2014
Allied Cooperative has announced that members of Arcadia Co-op voted in favor of a merger with Allied Cooperative, paving the way for the consolidation which will be effective on December 1, 2014. Read More
InsecticidesBioinsecticide VENERATE Now Registered In California
August 27, 2014
Marrone Bio Innovations' VENERATE is a new tool to help California growers control crop-damaging insect pests, fight the development of insect resistance and reduce pesticide residues on fruits and vegetables. Read More
CropLife 100Two Iowa-Based Ag Co-ops To Merge
August 27, 2014
The Board of Directors and management of United Western Coop, Missouri Valley, IA has completed a merger with Heartland Co-op, West Des Moines, IA, effective September 1, 2014. Read More
FertilizerKoch Expands AGROTAIN Nitrogen Stabilizer Portfolio
August 26, 2014
Koch Agronomic Services, LLC has added two new innovative nitrogen stabilizers to the AGROTAIN product family – AGROTAIN ADVANCED and AGROTAIN DRI-­MAXX. Read More
Seed/BiotechDuPont To Build Two Seed Treatment Centers
August 26, 2014
DuPont has announced construction on two state-of-the-art centers dedicated to developing and testing seed treatment formulations, applications and seed handling techniques in an important step toward bringing new solutions to growers. Read More
Seed/BiotechLoveland Products Acquires A Controlling Interest In Ag…
August 26, 2014
Loveland Products, a subsidiary of Agrium , has announced the company has acquired a controlling interest in Agricen, a Dallas-area agricultural biotechnology company delivering biochemical-based products for efficient and sustainable plant nutrition. Read More
StewardshipUp Close Look At The 2014 Environmental Respect Award W…
August 25, 2014
The 2014 Environmental Respect Award winners were honored recently at the 24th annual event in Wilmington, DE. Read More
Eric SfiligojAg Science Rejection Carries Consequences
August 25, 2014
As innuendo and fear dog the regulatory process, agriculture can’t get the new tools it needs to combat world hunger. Read More
LegislationFarmers Dismayed As New Farm Bill Dumps Direct Payments
August 25, 2014
The threatened end of cash subsidies to the nation’s row crop farmers dates back through at least the last two iterations of national agriculture policy legislation. Read More
MAGIE 2014 ShowStopper
EquipmentJohn Deere Again Wins MAGIE ShowStopper Award
August 25, 2014
For the second consecutive year, John Deere was honored at the Midwest AG Industries Exposition (MAGIE) for its new R4045 sprayer. Read More