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

Young corn plants in soil
FertilizerNutrients For Life Foundation Launches New Environmental Science Supplement For High School Teachers
April 13, 2016
The Nutrients for Life Foundation released the latest resource for high school teachers entitled Feeding the World & Protecting the Read More
Flooded corn in Indiana
FertilizerLa Niña Or El Niño: Both Affect Growers’ Nitrogen Investments
April 12, 2016
Submitted by Verdesian Life Sciences As growers prepare for planting, they will be anxiously checking the weather forecast. Midwest growers Read More
Soybean Field
FertilizerCompass Minerals Launches Protassium+ Organic Sulfate Of Potash
April 5, 2016
Organic crop growers now have a pure, consistent and reliable potassium fertilizer option with the release of Protassium+ Organic sulfate Read More
An employee moves dry fertilizer into a blending hopper.
FertilizerReport: Fertilizer Industry Supports More Than A Half Million U.S. Jobs
April 4, 2016
Fertilizers are well known for their contribution to the world’s food supply, but until now, the economic value and jobs Read More
Trending Articles
Eric SfiligojMissing The Family Ties In Agriculture
April 25, 2016
By its nature, the agriculture market is cyclical. Up and down cycles come and go with a regular pattern. For Read More
HerbicidesHerbicide Resistance In Waterhemp Continues To Grow
April 22, 2016
Twenty-five years ago, waterhemp was virtually unknown to Illinois farmers. Today, the broadleaf weed blankets corn and soybean fields across Read More
Eric SfiligojBiotech Corn Drop More Economics Vs. Consumer Rejection
April 18, 2016
Since their introduction into the agricultural marketplace, biotech crops has steadily grown in acreage in the countries of the world Read More
Crop InputsBayer: 5 Reasons We Disagree With Maryland Neonic Ban
April 12, 2016
We’re disappointed that the Maryland legislature chose not to stand up for sound science and the rights of Maryland’s homeowners Read More
Corn
OpinionChallenging Global Economic Conditions Putting More Heat On U.S. Ag Retailers
April 7, 2016
There it is. That vague, slightly sickening feeling in the pit of my stomach. Things are getting weird out there. Read More
ScoutPro iPad
Precision AgWhat’s Trending In Soil Testing And Scouting
April 6, 2016
Keeping up on soil testing and scouting, especially following unusual weather conditions, can play a role in maximizing yields. Soil Read More
Latest News
BAICOR
CropLife 100BRANDT Acquires Utah Specialty Fertilizer Company
April 28, 2016
BRANDT, a leading agriculture retailer and manufacturer of specialty ag products, has acquired a majority interest in BAICOR, L.C. BAICOR, Read More
Soybean field
Industry NewsVerdesian Life Sciences Adds Vice President Of Business…
April 28, 2016
Verdesian Life Sciences has announced the addition of Marc Treurniet to the plant health and nutrition company’s management team. Treurniet Read More
ManagementBiotech Crops Developments and Millennials
April 28, 2016
Editors Eric Sfiligoj and Paul Schrimpf talk about the latest activities in biotech crops and a major shift in the Read More
Industry NewsNachurs-Alpine, Pathway Biologic Extend Marketing Agree…
April 28, 2016
Nachurs-Alpine Solutions (Marion, OH) and Pathway Biologic (Plant City, FL) announce an extension to their exclusive marketing agreement specific to Read More
MicronutrientsCharah Add Three Warehouses For SUL4R-PLUS Fertilizer
April 28, 2016
Charah, Inc., a total solutions company providing unparalleled service and innovation for the coal-fired power generation industry, announced today that Read More
Spenser Forgey, Yahama Fortix
FungicidesIndiana Farmer Wins Arysta LifeScience FORTIX Fungicide…
April 28, 2016
Arysta LifeScience North America recently presented Spenser Forgey, a grower from Young America, IN, with a new 2016 Yamaha Grizzly Read More
Corn Field
HerbicidesNew Wilbur‐Ellis Herbicide Targets Volunteer Corn
April 28, 2016
Wilbur‐Ellis Co., a recognized leader in marketing and distribution of crop protection products, as well as precision agriculture technology, has Read More
StewardshipNRCS To Help Farmers Measure Conservation Impacts On Wa…
April 27, 2016
The USDA has announced the availability of $2 million to help farmers install edge-of-field stations that monitor water quality as Read More
Planter in Iowa
EquipmentTop 10 Twitter Pics For #Plant16
April 27, 2016
Despite some wet weather in parts of the Midwest, growers and ag retailers are working feverishly to plant this year’s Read More
HerbicidesHELM AGRO Launches New HELM Sulfentrazone 4F Herbicide
April 26, 2016
HELM AGRO US, Inc. has announced the federal Section 3 registration of its new HELM Sulfentrazone 4F herbicide. Classified as a Read More
Valley Irrigation Valley 8000 series on corn
EquipmentValley Irrigation Receives Environmental Stewardship Ho…
April 26, 2016
Valley Irrigation has been recognized as a Groundwater Guardian Green Site by the Groundwater Foundation. The Groundwater Guardian Green Site Read More
Eric SfiligojMissing The Family Ties In Agriculture
April 25, 2016
By its nature, the agriculture market is cyclical. Up and down cycles come and go with a regular pattern. For Read More
HerbicidesHerbicide Resistance In Waterhemp Continues To Grow
April 22, 2016
Twenty-five years ago, waterhemp was virtually unknown to Illinois farmers. Today, the broadleaf weed blankets corn and soybean fields across Read More
ManagementIllinois Leads The Nation In 4R Certified Nutrient Mana…
April 22, 2016
As Illinois agriculture works to educate farmers about minimizing environmental impact and optimizing the use of ag nutrients, Illinois now leads Read More
Social media
Matt Hopkins7 Social Media Trends Shaping Ag Retail In 2016
April 22, 2016
After writing my last column on why social media is a must for ag retailers, I heard from several readers Read More
Industry NewsArysta LifeScience Adds Corey Abels To Midwest Sales Te…
April 22, 2016
Arysta LifeScience North America recently announced the addition of Corey Abels as Territory Sales Manager for the Midwest region. In Read More
Soybean Field
HerbicidesHELM AGRO US Unveils New Sheridan 25 WG Herbicide
April 22, 2016
HELM AGRO US, Inc. has announced the federal Section 3 registration of its new Sheridan 25 WG herbicide for selective Read More
ManagementCentennial’s Jim Fargo Talks Ag Retail
April 21, 2016
Special guest Jim Fargo discusses challenges facing this CropLife 100 retailer. Read More