The Spring Fertility Outlook For 2016: Lots Of Questions
February 1, 2016 As the calendar turns to late winter, many in the agricultural marketplace are busy getting ready for another planting season. By now, grower-customers have made their seed type decisions (hopefully) and many ag retailers are beginning the work of prepping their custom application/spreading equipment for the busy months just around the corner.
Of course, the one question on virtually everyone’s mind this time of year is how well, or poorly, will the demand for fertilizer be in 2016? Based upon the feedback from ag retailers in-the-know, this is currently a hard to answer query.
Many ag retailers remain optimistic. “The fertilizer outlook is very favorable,” says Dave Coppess, Executive Vice President, Sales & Marketing for Heartland Co-op, West Des Moines, IA. “We’re seeing a shift to more corn acres for 2016 driven by market economics.”
Still, other ag retailers aren’t so certain 2016 will be a positive year for spring fertilizer demand. “We are somewhat negative,” says Tim McArdle, COO and Vice President for BRANDT, Springfield, IL. “Farmers cash flow will be less and fertilizer may move to the bottom of their priority list.”
Finally, there is a group of ag retailers that believe 2016 will end up being a mixed bag for fertilizer sales, at best — especially at the retail level. “With operating budgets tight or negative at the farmgate, the retail sector is feeling the pressure,” says Spencer Weir, a Certified Crop Adviser and head of the Plant Nutrition Department for Asmus Farm Supply (AFS), Rake, IA. “My best guess at this time is fertilizer volumes will be flat or down across our trade area.”
A Disappointing Trend
Part of the reason for all this across-the-board predicting for fertilizer trends in 2016 can be traced back to the category overall performance during the past few years. Following the economic downturn in 2008 that impacted virtually every crop input category, fertilizer revenues for the nation’s top ag retailers bounced back nicely in 2009, and kept growing through the 2012 growing season. By the end of that year, fertilizer sales represented more than 55% of all crop inputs/services sales for CropLife 100 ag retailers.
However, between 2013 and 2014, the category’s sales dipped 3%, dropping from $15.3 billion in 2013 to $14.8 billion in 2014. And during 2015, this percentage dropped even further, declining another 2% to $14.6 billion. Market share for the fertilizer category now stands at 48%. According to most market watchers, this usage dip was a result of numerous factors, including an exceptionally wet spring across many of the corn crop-heavy Midwestern states, steadily falling commodity prices, and high fertilizer prices.
Furthermore, going into the 2016 growing season, many of these factors remain in place. According to USDA figures released in late 2015, grower-customer incomes dropped almost 50% between 2014 and 2015. And commodity prices that were in the $7 and $19 range for corn and soybeans, respectively, just a few years ago have fallen back into the $3 and $8 ranges for the upcoming year.
This, says Weir, has significantly changed his outlook for fertilizer demand going into the new season. “Originally, I would have said in the late summer [of 2015 that] less dry fertilizer would again be spread during the fall and there would be an increase in starter fertilizer use in the spring as a short-term and less expensive option,” he says. “[But] prepay sales for fertilizer are slow to come for 2016 and some customers have dropped starter fertilizer out of the mix because of tight budgets. My feeling is that less dry fertilizer was spread again in general across our trade area.”
No matter what way the market is viewed, Weir believes price — be it for the crops produced or the fertilizer itself — is the biggest challenge facing the agricultural industry right now. “This isn’t 2008-09,” he says, harkening back to the infamous market price crash that occurred during that year’s summer season. “But it’s not going to be a good year for most retailers sitting on fertilizer products that have devalued anywhere from $60 per ton to more than $100-plus per ton.”
On the flipside, however, lower fertilizer prices should help some grower-customers when they are making their application decisions, says Heartland Co-op’s Coppess. “Many farmers expected fertilizer prices to drop over the winter,” he says. “They were correct, and we are now writing spring prepays at these lower prices.”
Typically in lockstep with price uncertainty in the fertilizer market is logistics. As many ag retailers point out, the application windows for applying fertilizer to the field during the spring season have been severely compressed in recent years, and 2016 promises more of the same. According to BRANDT’s McArdle, this could present some major challenges to ag retailers when it comes to storing fertilizer at their outlets.
“Retailers will be cautious of holding inventories if prices continue their recent volatility,” he says. “This may impact supply unless some kind of creative solutions are established with fertilizer suppliers beforehand.”
AFS’ Weir agrees. “With the extreme volatility in certain market segments, I feel that being upside down on product that has been secured and delivered is also not a comforting feeling for managers,” he says. “Throw in the slow grower prepay situation on top of all of this and it equals a lot of risk and uncertainty on the retailers. I believe that the retail market will adjust much more slowly than the wholesale market has over the past couple of months. I would tend to think there will be a higher amount of spot purchasing moving forward for spring and summer, especially for nitrogen (N) inputs compared with previous years.”
N Up, P&K Not So Much
While most ag retailers are uncertain which direction the overall fertilizer market will head this spring, they all agree that among macronutrients, N will perform the best. “N is required annually for corn production and it will not be affected much as the other macronutrients,” says BRANDT’s McArdle.
AFS’ Weir agrees with this view, but thinks the forms of N being used by grower-customers in 2016 might be different than the historic norms. “Producers need N above all else to raise a crop and that is the one input that I could say should stay flat,” he says. “But the forms of N used will change due to the cost per unit. There was in places a huge carryover of anhydrous ammonia tons that will need to be moved during the spring to avoid terminal storage and carrying costs. But if I had to make an educated guess, urea use will increase the most in 2016 because of its cost point. However, custom applicators will struggle to keep pace if there are huge swings from UAN to urea.”
As for phosphorous and potash (P&K), the outlook in 2016 is a little less certain. Some such as Weir believe the price points on phosphate fertilizers are still overpriced vs. where commodity levels are, “so I predict those volumes will be down,” he says.
And as always, other ag retailers think that grower-customers will continue to hope that their P&K applications during the previous few years will hold up crop yields for at least one more season. “Farmers are still mining the soil reserves for P&K,” says Heartland Co-op’s Coppess.
Whether The Weather Cooperates
As ag retailers are quick to point out, the economic factors driven by grower-customer incomes and commodity prices tend to be known will in advance of the upcoming growing season. The one major wildcard, however, is weather. As Weir reminds market observers, predicting this part of the annual growing season equation is haphazard at best.
“The weather is going to play a huge role in price and the types of N that is used come spring,” he says. “Weather will drive the demand for N use or the amounts being used during the sidedress timing as well. The weather will also have an effect on certain input prices because of rivers opening in time to get cheaper product moved to plants across the region in time for spring application.”
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