Searching For Stability

After a tumultuous year in 2008 and a slow start to the 2009 season, the fertilizer industry is searching for normalcy. While it may never return to the predictable market and buying patterns of the past, it is likely to reclaim more stability in the year ahead.

Experiences of the past year have emphasized some important trends which impact everyone in the supply chain — from the fertilizer producer down through the distributor, dealer, and grower. The business has truly become more global; its success in the future depends largely on developing more efficient distribution, and effective buying and risk management strategies now need to adapt to the more volatile times.

Global Market

If events of the past year have taught us anything, it’s that global access in today’s fertilizer business is essential. CHS is working to maximize its global grain marketing infrastructure and grow its global sourcing capabilities to build an information network for both the input and output sides of agriculture. We’re pursuing this approach because the two sides of the business have become closely intertwined, giving us unique insights we can use to help our customers be more competitive.

The shift in where products are produced in recent years has greatly impacted how and when we buy. Today, 66% of the urea, 20% to 25% of the UAN, and much of the ammonia U.S. growers use is imported. The result is that over half of total U.S. nitrogen used by growers is now imported. Due to the relatively high U.S. cost of natural gas — the main ingredient in ammonia — we will continue to see new nitrogen production built in the Arab Gulf and other gas-rich regions.

Phosphate and potash supplies produced in North America still dominate those markets, and that’s not likely to change in the near future. The only significant import of either of these is potash from Russia, which makes up less than 10% of the market.

Our current challenge with product supply stems from lack of demand, which has been caused in part by the current global credit crisis. It has led to the shutdown of a significant portion of nitrogen, phosphate, and potash production capacity in recent months, so the industry currently doesn’t have enough production up and running to meet all seasonal demand. That could cause tightness in some markets through the spring season this year.

Moving Product

Adequate infrastructure is crucial to most businesses, but now we live or die by it in the crop nutrient industry. You base inventory management on your storage capacity and ability to move product where it’s needed. The U.S. crop nutrient distribution system has, for the most part, sufficient storage to cover demands for each season — spring and fall. Much of the new capacity that’s being added will provide increased logistical and transportation efficiencies. For CHS, a recent example is a new facility in Friona, TX. When completed later this spring, the new warehouse will provide storage, blending, and rail loadout capabilities to better serve our customers throughout Texas, Oklahoma, New Mexico, and parts of southern Kansas and Colorado. We’ll gain transportation efficiencies because it has been built near our existing grain handling facilities.

We’ll continue to see consolidation of older assets to take advantage of unit train efficiencies and other ways to remove cost from the system. We’ve already seen quite a few new hub plants built for the same reason and expect to see more pop up in the next few years. The key here is that dealers and distributors must ensure real cost savings are achieved with new facilities and that the added risk of big one-time fertilizer buys can be managed.

Buying Strategies

While last year’s price run-ups were a historic anomaly, something similar could happen again. Hopefully the industry will be better able to react, and react sooner, if it does. To do that, it is important to track key market factors, such as relative world natural gas prices, commodity prices, and projected food demand. They can provide some insights into future supply and demand issues.

But for the dealer and grower, it is critical to develop a buying strategy. Trying to call the bottom of the market is much too risky in today’s volatile conditions. Start by committing a general plan to paper that outlines product volumes needed, based on historic averages.

Then, look at ways to spread out purchases, buying in 1,000-ton increments, if necessary, to even out the effects of price swings. Everyone wants to hit a home run and buy all their product at the lowest price, but that’s just not feasible in today’s markets. Markets move much more quickly than they used to, so making more, smaller purchases is a good way to help reduce price risk.

Many cooperatives now limit their unsold inventory, replacing it only when they make sales. Making those sales also depends on good, regular communication with customers. While this spring has been a particularly challenging time to get commitments on crop nutrients, it’s important to keep open those lines of communications with customers and use them frequently. You need to be able to react as quickly as you can to secure product for your customers when they make decisions.

Fertilizer prepayment has become widespread and is a policy that is likely to stay. There’s simply too much risk involved for any business to continue to extend credit beyond 15 to 30 days, unless it’s through some structured in-house credit plan.

For growers, the real key is to market their crops to the best of their abilities, and not become too anxious over input purchases. By layering product purchases and backing those purchases with grain sales, they can lock in margins, greatly reducing risk. And growers can generate more income through timely marketing of outputs than they could ever save through the most astute fertilizer buying.

Leave a Reply

Fertilizer Stories

Potash Corp Agrium
Crop InputsAgrium, Potash Corp To Merge To Create $36 Billion Company
September 12, 2016
Canada’s Agrium Inc. and Potash Corp of Saskatchewan Inc. have agreed to combine in a deal that would create a Read More
FertilizerBRANDT Specialty Fertilizers Help Grower Set Soybean Yield Record
September 12, 2016
BRANDT, a leading agriculture retailer and manufacturer of specialty Ag products, has announced that its new proprietary nutrition products were Read More
Corn Field
FertilizerBridging Crop Nutrition Science And Technology
September 7, 2016
The future seemed to draw nearer for the 1,600-plus attendees of the co-located InfoAg and International Precision Agriculture conferences in St. Read More
Fertilizer Bin
FertilizerState Of The Fertilizer Industry Report Highlights Environmental, Social Contributions
September 6, 2016
As consumers, we live in a world with access to more data than we could ever hope to mine through. Read More
Trending Articles
Bayer Monsanto
Crop InputsBayer-Monsanto Mega-Merger: 6 Things You Need To Know
September 14, 2016
Mega mergers have become almost routine in the agricultural industry. Right on the heels of Monday’s news that fertilizer giants Potash Read More
Potash Corp Agrium
Crop InputsAgrium, Potash Corp To Merge To Create $36 Billion Company
September 12, 2016
Canada’s Agrium Inc. and Potash Corp of Saskatchewan Inc. have agreed to combine in a deal that would create a Read More
Osage Co-op Elevator Osage, IA Finished Building
OpinionAre We Crazy?
September 8, 2016
At some point in the first few months of my employment here at CropLife® magazine, I started getting curious about Read More
ManagementMAGIE 2016 Highlights and Deere Anti-Trust
September 1, 2016
CropLife Editor Eric Sfiligoj discusses the recent Midwest AG Industries Exposition and the Department of Justice’s objection to John Deere Read More
ASMARK 2016 Retailers Live! Tour - CPS
CropLife 100CPS Acquires Texas Retail Operation
August 23, 2016
Crop Production Services (CPS) has acquired the assets of Larry’s Chemical and Spray, Inc., for an undisclosed amount in an Read More
Key Cooperative Marcus Construction Steel Building
Retail FacilitiesMarcus Construction Builds High-Speed Agronomy Center For Key Cooperative
July 7, 2016
Key Cooperative in Grinnell, IA, wanted a state-of-the-art Agronomy Center to better serve its customers. Marcus Construction delivered exactly that. Read More
Latest News
Syngenta Seedcare Institute
Seed/BiotechSyngenta Opens New North America Seedcare Institute In …
September 23, 2016
Syngenta unveiled its new Seedcare Institute in Stanton, MN, during a recent grand opening celebration. More than 150 industry leaders, Read More
StewardshipMonsanto Invests $1.6 Million In System To Quantify Gre…
September 23, 2016
The USDA – Natural Resources Conservation Service (USDA-NRCS) recently awarded the National Corn Growers Association (NCGA) and its Soil Health Read More
Pipe rack
LegislationCourt Sides With Ag Retailers On PSM
September 23, 2016
The D.C. Court of Appeals has ruled the Occupational Safety and Health Administration violated the Occupational Safety and Health Act when Read More
ManagementPacific Coast Fertilizer Announces Interest In Longview…
September 22, 2016
Pacific Coast Fertilizer LP (PCF) announced at the Cowlitz Economic Development Council board of directors meeting its interest in developing Read More
Young corn plants in soil
UncategorizedCool Planet Raises Additional $9 Million To Commerciali…
September 22, 2016
Cool Planet has announced the first close of a new financing round to commercialize the company’s Cool Terra Engineered Biocarbon Read More
Crop InputsJim Loar Promoted To President And CEO Of Cool Planet
September 22, 2016
In a move that reflects and reinforces the company’s commitment to the agricultural market, the Cool Planet board of directors Read More
BlendersNorth Dakota Coop Debuts Dry Fertilizer Plant
September 22, 2016
North Central Grain Cooperative has begun operations at a new dry fertilizer plant at its Rolla, ND, site. It is Read More
Crop InputsMonsanto, Bayer Officials Defend Proposed $66 Billion M…
September 21, 2016
Top officials for Monsanto and Bayer defended their proposed $66 billion merger before skeptical senators on Tuesday, insisting that the Read More
ManagementUpcoming Shows & Recent Events
September 19, 2016
Editors Paul Schrimpf and Eric Sfiligoj talk about upcoming trade shows and events and review the Mid America CropLife Association Read More
Industry NewsVerdesian Life Sciences Appoints New CEO
September 19, 2016
Verdesian Life Sciences, a plant health and nutrition company, today announced that its board of directors has named Kenneth M. Avery Read More
Corn
Crop InputsEPA Settles With Syngenta For Alleged Multi-Regional Pe…
September 19, 2016
The U.S. EPA has announced a multi-region settlement with Syngenta Crop Protection, LLC (Syngenta) in Greensboro, NC, for alleged violations of Read More
ManagementMerger Mania
September 16, 2016
Editors Paul Schrimpf and Eric Sfiligoj discuss this week’s mega-ag mergers of Bayer and Monsanto and Potash and Agrium. Read More
Monsanto sign
Crop InputsMonsanto Ends Up Being A Bargain For Bayer
September 16, 2016
History will say Bayer got a bargain in its $66 billion purchase of Monsanto, writes David Nicklaus, St. Louis Post-Dispatch. The Read More
Greg Musson, Gar Tootelian
CropLife 100California Ag Retailer Steps Up To Feed Families Affect…
September 16, 2016
GAR Tootelian, Inc. (GAR) in Reedley, CA, is challenging the Central Valley to help raise enough money and provide 525,000 meals Read More
Crop InputsBayer, Monsanto CEOs Discuss Merger
September 15, 2016
Werner Baumann, Bayer CEO, and Hugh Grant, Monsanto CEO, discuss why they decided to merge their companies. Read More
Corn close up
Crop InputsNY Times: Bayer-Monsanto a Bad Deal for Farmers
September 15, 2016
Via NY Times: Don Halcomb, a 63-year-old farmer in Adairville, KY, is expecting his profit to vanish this year, largely Read More
Werner Baumann, Bayer AG, and Hugh Grant, Monsanto
Crop InputsBayer-Monsanto Merger Creates New Global Ag Giant
September 14, 2016
During the whole of 2016, many of the companies that do business in the agricultural industry have concluded the best Read More
Bayer Monsanto
Crop InputsBayer-Monsanto Mega-Merger: 6 Things You Need To Know
September 14, 2016
Mega mergers have become almost routine in the agricultural industry. Right on the heels of Monday’s news that fertilizer giants Potash Read More