As we were compiling the final pages of our annual Retail Outlook issue, retail managers were still anticipating end-of-year orders from growers while plotting their strategies for the year ahead. Three leading retail managers and industry leaders — Dave Coppess of Heartland Co-op in Iowa, Dan Weber of Ceres Solutions in Indiana, and Ken Manning of Wilbur-Ellis in California — took the time to share their 40,000-foot view of ag retailing going into the new year. In addition to leading their own organizations, each has been active in the Agricultural Retailers Association (ARA). Coppess served as chairman in 2006, Weber is the immediate-past chairman, and Manning is the newly minted chair for 2009.
Each of you attended the Ag Retailers Association Conference in December. What were the key takeaways you gained from this year’s event?
Dave Coppess: It was a healthy opportunity to hear from the leaders of international companies that have so much impact on where we are going in this industry. It is good to look at the long view rather than where we are in this short window of turmoil. It’s healthy for attitudes, and honestly, misery loves company. We are all pretty much in the same boat right now.
The primary discussion topic was fertilizer and the global dynamics that led us into this situation. Things have changed dramatically in the last 120 days leading up to the conference, and all of a sudden we are sitting on a pile of expensive fertilizer — global demand has diminished, and many of us are upside down and trying to figure out how to manage it in a profitable manner.
Ken Manning: The coming year will be challenging — the changes in the banking industry create challenges in all businesses, including agriculture. We are also seeing influences in U.S. agriculture from the global ag economy more than ever before.
Dan Weber: Everyone — every dealer — has the same concern regarding where inventory value will land, and concern over the continued volatility will endure as we go through the spring and summer fill. Not many retailers have seen this since the early ’70s. Some didn’t survive then, and I guess there will be some dealers that will not survive this one.
The fertilizer market was on everyone’s mind and underpinned many of the questions asked at ARA. What are the issues you are facing at your companies with regards to fertilizer decision making going into 2009?
Weber: The longer term issue is resupply of inventories. Are farmers willing to pay dealers for taking the risks by buying inventory early to ensure they have it in place, rather than wait and buy on cash loads on a “just-in-time” inventory management strategy. It appears some farmers are willing to reward the dealer who did the least to ensure they would have fertilizer when the farmer needed it.
The other concern is the farmer’s credit-worthiness. Most farmers have had a couple of good years, but not all have. Can we tell which is which?
Coppess: We have to keep an eye on the long view, but we also have to focus on this short-term situation we’re in. We have stockpiled expensive inventory. And all of a sudden, our buyers stepped out of the marketplace. These are management challenges that we have not had to deal with before. At ARA there was one key comment by Mosaic’s Jim Prokopanko: More climbers die on the way down Mount Everest than on the way up. As we come down the mountain that was 2008, we will have to manage things totally different or suffer the consequences.
Did we learn anything from the experience we got in 2008 that we can project to next year and beyond?
Weber: You bet! An old agronomist who always bragged about his 28 years of experience told me when they announced Payment-In-Kind (PIK) in 1983, “Weber, I’ve had 28 one-year experiences, and you’re about to have one!” I never forgot that, and that is what we should remember from this past year. It is a one-year experience to learn from, but remember, no two years are alike.
Coppess: One of the key terms is contract integrity. We as an industry, and in particular with our customers, have not been as disciplined with the contract we make with growers. In fact, there were some retailers who contracted fertilizer for spring on a handshake and not on a written document. One of the basic learnings I came back with was lots of retailers will have to sit with a lawyer and design a contract that contains consequences for the grower. We need our farmers to do a better job of forecasting their needs and then sticking to it. Our farmers have expected us to deliver it fast, cheap, and perfect, and we have told them that we can provide any two, but not all three, of those expectations. It’s a lesson we need to communicate to growers.
We also need to develop risk management tools for our industry, not only in fertilizer but in ag chemicals and other dynamics. Farmers and manufacturers have risk management tools, but we as retailers are at the mercy of the market.
What’s keeping you up at night?
Coppess: I lie awake wondering if I am doing an adequate job of sharing market information with my employees, and are they sharing it with the farmer. How can we communicate effectively to the farmer who is really carrying most of the risk in agriculture, so that they have the information they need to make good business decisions?
We are asking growers what information they need and how they want to receive it. But knowing when to pull the trigger on the best and most accurate information, and then knowing how to manage customers and keep them from leaving when that information changes is a big issue.
The people part is important. If our people possess broader business skills and understand financing and marketing grain — if we can make that farmer more money per acre from one year to the next, then we should not be as concerned about our retailer pricing if we are $10 a ton higher than our competitor.
Weber: What keeps me up at night are comments to our employees that we lied to them when we took their prepay late last summer when they wanted to lock in some future costs. I have been in this business for more than 35 years, and the one thing that I am proud to say about this industry is it has been built on integrity of the individuals who work with the farmers and who manage these ag retail operations.
Sure there has been a few people over the years who have been questionable, but they are usually smelled out and pushed out. To have famers who are in a tough situation accuse us of lying to them is hard to swallow, even if we know they are just looking for someone to blame.
We preach and practice adding value with our customers. This spring could test our best people’s relationships with their customers.
There was general agreement that the fundamentals of ag are sound enough to carry the day against the difficult conditions in the general economy. Do you share this optimism?
Manning: I do believe there are some fundamentals of ag and some trends that are strong for the long term on a worldwide basis. Population growth combined with diet changes will continue to create higher demands for certain crops. New technology and advances in plant nutrition are key drivers for increased production. These are the types of things that will make a case for strong production ag in the future.
Weber: I do! We have been around since before the Great Depression and have survived down turns in the overall economy by being financially conservative and always doing the right thing for the customer and the company. We have strong balance sheets with almost no long-term debt. Our facilities are in good shape for the most part, and our employees are the best we’ve ever had at working with our customers’ programs to help them through these tough times. An example of this is our growth in precision agriculture. We’ve worked with key growers to ensure through our programs that promote grid sampling that recommendations are made in the customer’s best interest 2.5 acres at a time. No more blanket applications of fertilizers across the entire field.