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

FertilizerFall Fertility 2014: Forecasting Fertilizer Use
September 7, 2014
Great crops this year have tapped the soil, and fall work is definitely called for, but how challenging will that get? Read More
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

Trending Articles

HerbicidesAdjusting To The New Reality Of Weed Control
November 4, 2014
Even with new cropping systems being readied for market introductions, weed control will remain a challenge for many. Read More
StewardshipResponsibleAg Begins Auditor Training
October 31, 2014
ResponsibleAg auditor training is now underway at the Ford B. West Center for Responsible Agriculture in Owensboro, KY. Read More
InsecticidesNew Research Study Shows The Value Of Neonics
October 29, 2014
The study evaluated seed treatment, soil and foliar uses of neonicotinoid insecticides in the U.S. and Canada. Read More
Crop InputsPlatform Specialty Products To Acquire Arysta LifeScience
October 20, 2014
Once the acquisition is complete, Platform Specialty Products will combine Arysta LifeScience with previously acquired companies Agriphar and Chemtura Crop Solutions. Read More
Seed/BiotechMonsanto Offers New Support For Ferguson, Area Communities
October 8, 2014
Monsanto Co. has committed $1 million in new support for several collaborative efforts in Ferguson, MO, and surrounding communities in North St. Louis County. Read More
Seed/BiotechUnapproved Genetically Modified Wheat Found In Montana
October 3, 2014
USDA reports that one year after discovery of Monsanto's unapproved wheat in a single Oregon field disrupted U.S. wheat export sales, the GMO wheat has again been found in Montana. Read More

Latest News

soybean field
Crop InputsABM Patents Microbial R&D Technique
November 25, 2014
Focused Microbial Diversity (FMD) is a newly patented technique employed by Advanced Biological Marketing (ABM) to research and develop microbials that will be used in ABM products Read More
Crop InputsStorage Options Help Grain Growers Go To Market
November 24, 2014
While on-farm storage in a traditional upright storage bin is one possibility for storing grain, it may not be for everyone. Read More
Eric SfiligojGiving Thanks For Another Great Year
November 24, 2014
As Thanksgiving Day 2014 arrives, agriculture has plenty to be thankful for. Read More
Crop InputsSyngenta Cost-Cutting Program To Affect 1,800 Jobs
November 24, 2014
The company's Accelerating Operational Leverage program will result in job reductions and relocations totaling around 1,800 across the company, the majority of which will occur in 2015. Read More
EquipmentAGCO Announces Operator Of The Year Finalists
November 20, 2014
Four custom applicators have been selected by AGCO Application Equipment as finalists for 2014 Operator of the Year, an honor that recognizes them as being among the top professionals in their industry throughout North America. Read More
MicronutrientsH.J. Baker Expands Tiger-Sul Business
November 20, 2014
H.J. Baker has created and filled two strategic positions in business development and sales within its Crop Performance Division. Read More
soybean field
FertilizerGeneral Mills Honors United Suppliers For Nitrogen Opti…
November 19, 2014
United Suppliers winning proposal detailed SUSTAIN, a consulting network that provides customized products and services for farmers using a needs-based system approach. Read More
EmployeesOhio AgriBusiness Association Awards $25,000 In Scholar…
November 19, 2014
Each year, the Ohio AgriBusiness Association Educational Trust scholarship program awards scholarship dollars to students enrolled in an agriculture-related field attending several state colleges. Read More
ManagementServi-Tech Names New CEO
November 17, 2014
Servi-Tech has named Greg Ruehle its new president and CEO. Read More
CropLife 100Pinnacle Ag Acquires Colorado Aerial Application Outlet
November 17, 2014
Ft. Lupton, CO-based Reck Aviation — a full-service chemical application company providing aerial crop applications of fertilizers and crop protection products — will operate as part of Pinnacle's AgOne Application Services brand. Read More
Eric SfiligojMcDonald’s Message: Biotech Crops Scarier Than Cancer
November 17, 2014
Despite their potential health benefits, one of the world’s largest potato users will pass on a new biotech offering. Read More
MicronutrientsWinField Releases 2014 NutriSolutions Results
November 14, 2014
A number of significant regional and national crop deficiency trends emerged from the 2014 WinField NutriSolutions tissue sampling program. Read More
FertilizerH.J. Baker Opens Chinese Production Lines
November 14, 2014
The occasion was the official launch of the Tiger-Sul sulphur Bentonite production line of two much anticipated fertilizer products in China, T90CR sulphur fertilizer and TZinc micronutrient enhanced sulphur fertilizer. Read More
ManagementOhio Certified Crop Adviser Program Accepting Nominatio…
November 14, 2014
The award recognizes an individual who delivers exceptional customer service for farmer clients in nutrient management, soil and water management, integrated pest management and crop production in Ohio. Read More
HerbicidesSyngenta Announces Acuron Trial Plot Results
November 14, 2014
Acuron was tested at 167 trial locations across 35 states. Trials included 95 Syngenta locations, 54 university locations and 18 distributor locations. Read More
Crop InputsVerdesian Expands Sales Force
November 13, 2014
The new sales representatives will work with growers, retail partners and distributors to oversee technical training and product education. Read More
EquipmentAGCO Raises $100K For Wounded Warrior Project
November 13, 2014
AGCO Corp. partnered with local AGCO dealers across the U.S. and Canada to raise nearly $100,000 in support of wounded service veterans. Read More
HerbicidesDow AgroSciences Announces Launch Of Enlist Duo Herbici…
November 12, 2014
It will be launched in conjunction with a stewarded introduction of Enlist corn, and seed production of Enlist soybeans in 2015. Read More