If crop inputs were seen as Zodiac signs, fertilizer would definitely be a Gemini. On the positive side, fertilizer was in high demand throughout 2007, with total sales among CropLife 100 retailers topping $6.7 billion. This represented a 13.6% increase from the 2006 total. Indeed, several of the largest ag retailers reported their fertilizer sales were more than $500 million in 2007, with one company recording fertilizer revenue in excess of $1 billion.
“As farm size and input costs increase, farmers are looking to buy in truckload quantities delivered to the farm,” says Frank Schumacher, operations manager for Mountain View Co-op.
Of course, the reason for this incredible uptick in fertilizer sales is directly tied to the increase in corn acreage. In 2007, U.S. growers planted almost 93 million acres of corn in an effort to take advantage of higher corn demand from the growing ethanol production sector. Since growing corn typically accounts for 43% of total domestic fertilizer usage, this 19% acreage increase from 2006 translated into some very positive revenue numbers for the majority of CropLife 100 retailers.
On the negative side, many retailers weren’t able to completely enjoy the fruits of this fertilizer bonanza. According to The Fertilizer Institute, the average prices paid for the three major fertilizer segments — nitrogen, phosphorus, and potash — have increased 113% in the past 15 years. Since 1999, the average cost of anhydrous ammonia has risen 172% as domestic suppliers have closed their doors. This has forced ag retailers to contract to receive much of their supply from overseas, increasing the capital investment needed up front while lengthening the delivery time.
“The amount needed to run our business is up 50% at minimum,” says Thomas Fullenkamp, president for Golden Furrow Fertilizer, Inc. “It seems that you need to purchase early to lock in prices in a continually changing market.”
Despite this fact, most CropLife 100 retailers remain happy with how they receive their fertilizer. When asked if they were satisfied with their current macronutrient delivery, 62% indicated they were. Another 12% said they were “very satisfied” with their deliveries. Only 26% of respondents said they were “not satisfied” (see chart).
More Corn Or More Beans?
Even with its stellar performance in 2007, retailers surveyed in the CropLife 100 were hesitant to predict smooth sailing for fertilizer revenue moving into 2008. According to many respondents, fertilizer’s fortunes will remain tightly tied to the fortunes of corn. Here, the future is cloudy indeed.
Early in 2007 as ethanol plants were springing up like dandelions and demand for source corn was skyrocketing, crop analysts were predicting that U.S. growers would have to plant an additional 5 million to 6 million acres of corn in 2008 just to keep up with this demand. Then in July, a slowdown in ethanol plant construction coupled with lower corn commodity prices and higher fertilizer prices had many market watchers forecasting a downturn in corn acreage and a comeback in soybean acres, helped by the fact that soybeans hit $9 per bushel in the fall.
Today, no one is certain which direction the overall market will head. That includes the majority of CropLife 100 retailers. When asked if they expected corn acreage to be up or down in 2008 compared to 2007, the results were dead even — 41% apiece. The remaining 18% thought corn acreage would be flat.
“Higher cost fertility inputs will pose many problems this coming year,” says R. Hovey Tinsman III, president for Twin State Inc. “Fertility costs could drive farms to plant more beans.”
As for soybeans, a sizable majority — 73% — said they expected acreage to increase as per-bushel prices remain at record highs. Only 7% of respondents believe soybean acres will fall in 2008, with the remaining 20% expecting no change vs. the 2007 totals.