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

FertilizerCF Nitrogen Investment: What It Means For CHS
August 13, 2015
A record $2.8 billion investment in nitrogen fertilizer manufacturing through CF Industries Nitrogen, LLC, is a historic step that links Read More
Carl Casale of CHS
FertilizerCF Industries, CHS To Form Strategic Venture
August 12, 2015
CF Industries Holdings, Inc. and CHS Inc. announced today that they have agreed to enter into a strategic venture.  CHS, Read More
FertilizerCF Industries, OCI To Create Global Nitrogen Leader
August 10, 2015
CF Industries Holdings, Inc. and OCI N.V. announced they have entered into a definitive agreement under which CF will combine Read More
FertilizerKoch Agronomic Services Launches N-TEGRATION Technology
July 27, 2015
Koch Agronomic Services, LLC (KAS) has launched  N-TEGRATION Technology, a process technology platform designed to enable production of enhanced efficiency fertilizers at Read More
Top 100 Articles
Crop InputsLand ‘O Lakes, United Suppliers Finalize Merger
August 24, 2015
According to a press release on August 24, owners of United Suppliers, Inc. and members of Land O’Lakes, Inc. “have Read More
West Central Cooperative, Jefferson, IA
CropLife 100Iowa Cooperatives To Explore Unification
August 19, 2015
The boards of directors at two of Iowa’s leading farmer-owned cooperatives yesterday signed a letter of intent to study the Read More
CropLife 100Southern States Coop Hosting Drone Flight This Friday
August 3, 2015
Southern States Cooperative — No. 9 on the CropLife 100 — is hosting an FAA-approved drone demonstration at Grandview Farms Read More
CropLife 100Aligned Ag Distributors Adds Four New Owners
July 30, 2015
Aligned Ag Distributors LLC has announced the addition of four new customer/owners to Franklin Holding Co. LLC. They are: The Read More
CropLife 100Pinnacle Purchases California-Based Specialty Crops Retailer
July 20, 2015
Pinnacle Agriculture Holdings has successfully acquired California-based NH3 Service Co.  Operating as part of Pinnacle’s Performance Agriculture brand, the new locations Read More
Asmus Farm Supply liquid fertilizer facility features 20,000 square feet
CropLife 100Slideshow: Asmus Farm Supply Shows Off Its New Liquid Fertilizer Facility
July 15, 2015
Asmus Farm Supply, Rake, IA, recently added a new liquid fertilizer facility to its company operations. The new liquid fertilizer Read More
Latest News
Crop InputsNFU: Monsanto Decision To Withdraw Syngenta Bid ‘…
August 26, 2015
National Farmers Union (NFU) President Roger Johnson said the organization was very pleased by the news that Monsanto has withdrawn Read More
Crop InputsMonsanto Withdraws Bid For Syngenta
August 26, 2015
Monsanto Co. abandoned its latest effort to acquire Syngenta AG, the world’s top maker of pesticides, after a sweetened bid Read More
Syngenta Sign
Crop InputsSyngenta Comments On Monsanto Announcement
August 26, 2015
The Board of Syngenta confirms that it received a verbal proposal from Monsanto to acquire the company at a price Read More
Case IH Patriot 2250 Sprayer
EquipmentHigh-powered Case IH Patriot 2250 Sprayer Pushes Throug…
August 26, 2015
Engineered with more muscle, the new 660-gallon-capacity Patriot 2250 sprayer features best-in-class horsepower, along with the fuel efficiency that comes Read More
Crop InputsLand ‘O Lakes, United Suppliers Finalize Merger
August 24, 2015
According to a press release on August 24, owners of United Suppliers, Inc. and members of Land O’Lakes, Inc. “have Read More
TMX-2050 In-Cab Display Launch Run Screen
Eric SfiligojPrecision Ag Could Shine In Increased Spotlight On Agri…
August 24, 2015
By any measure, 2015 is turning into one of the most challenging years agriculture has ever experienced. All throughout good Read More
ManagementCrop Conditions In Minnesota and Traveling Time
August 21, 2015
Editors Paul Schrimpf and Eric Sfiilgoj discuss the crop outlook from a field trip to Minnesota and upcoming travel plans. Read More
HerbicidesREUTERS: Anti-GMO ‘Scientist’ Calls For New…
August 20, 2015
EDITORS NOTE: We feel that it is important to note that there are those that believe one of the lead Read More
Rendering of Syngenta Seedcare Institute expansion
Seed/BiotechSyngenta Announces Seedcare Application And Resource Ce…
August 19, 2015
Syngenta recently announced the Seedcare Application and Resource Center, a collaborative new website designed exclusively for Syngenta Seedcare customers to Read More
Winter Wheat
Industry NewsArysta LifeScience Announces Two New Regional Sales Man…
August 19, 2015
Arysta LifeScience North America recently announced Steve Vining and Phil Reding have each accepted new positions as Regional Sales Managers. Read More
West Central Cooperative, Jefferson, IA
CropLife 100Iowa Cooperatives To Explore Unification
August 19, 2015
The boards of directors at two of Iowa’s leading farmer-owned cooperatives yesterday signed a letter of intent to study the Read More
Golden Harvest Corn healthy leaves
Industry NewsAligned Ag Distributors Names Vice President, Crop Prot…
August 18, 2015
Aligned Ag Distributors LLC have appointed Warren Hragyil to VP Crop Protection. Hragyil comes to Aligned Ag Distributors LLC with Read More
Industry NewsH.J. Baker Hires Manager For Crop Performance Division
August 18, 2015
H.J. Baker has announced Donald Sutton has joined the company’s Crop Performance Division as a part of the U.S. sales Read More
Radish cover crop taproot
Crop InputsSoil Health Field Days Promote Agricultural Evolution
August 18, 2015
Brent Bible practiced no-till farming and the use of cover crops on his farm in Lafayette, Indiana, but until recently, Read More
Cover Crop on corn
Industry NewsMore Farmers Find Healthy Soil Works For Crops, Bottom …
August 17, 2015
Doug Toussaint’s field was in critical condition — and he was the one killing it, reports Dan Gunderson on MPRNews. Read More
Deere tillage
Crop InputsTillage Practices Have A Direct Correlation To Soil Hea…
August 17, 2015
Many areas, including Michigan, have experienced a heightened sense of awareness of the importance of soil quality, according to Michigan Read More
Eric SfiligojAn Interesting Water Issue On The West Coast
August 17, 2015
A few weeks ago at the 2015 Environmental Respect Awards event in Wilmington, DE, one of the speakers talked about Read More
CF Industries' Donaldsonville, LA, nitrogen complex expansion site.
Industry NewsBleak Outlook Sparks Frenzied Dealmaking In Nitrogen Fe…
August 17, 2015
Sinking crop prices and frenzied output growth by producers have sparked a flurry of dealmaking worth nearly $10 billion in Read More