A Drought Hangover For Fertilizer Retailers

For several years now, the fertilizer category has been an unstoppable engine of market growth for the nation’s top ag retailers. Following the bump in the road that took place during mid-2008 and early 2009, fertilizer sales for the country’s CropLife 100 dealerships and cooperatives have been gaining ground (literally and figuratively) at a steady clip. In fact, between 2010 and 2012, total sales for the fertilizer category among CropLife 100 retailers grew from $10.1 billion to $15.2 billion, an increase of more than 50%. Naturally, market share for the sector also improved, topping 55% once the final numbers for 2012 had been calculated.

To many market watchers, what made this performance by the fertilizer category all the more surprising was how the sector kept growing despite some very unfavorable field conditions. Throughout much of 2012, most of the Continental U.S. was experiencing its most severe drought since the late 1980s, with temperatures soaring above 90 degrees for much of summer and barely any rainfall occurring. Still, thanks in part of modern agricultural practices and improved biotech seed varieties, most grower-customers managed to keep their crop yields high and profits intact. Others were helped out by crop insurance. But no matter what source the farm income came from, ag retailers did not see a significant drop-off in fertilizer demand during the fall 2012 application season.

There were, however, a few notes of caution from some CropLife 100 retailers last year. According to Dave Coppess, executive vice president, sales & marketing for Heartland Co-op, West Des Moines, IA, there was definitely a danger of some kind of drought hangover for fertilizer once 2013 rolled around. “Since many growers lost their crops and left them in the field in 2012, they might decide that the crop nutrients they applied for the year will be adequate to give them good yields going forward,” said Coppess in the 2012 CropLife 100 report. “So yes, there are some questions about fertility needs for the 2013 crop.”

A Prediction Comes True

But these are questions no longer. According to the 2013 CropLife 100 survey, the nation’s top ag retailers only recorded a modest $100 million sales bump in fertilizer during 2013, coming in at just over $15.3 billion. This 0.7% revenue increase was the slowest for fertilizer in better than five years. Furthermore, since the other three crop inputs/services categories all grew at a much faster rate during 2013, the fertilizer category experienced its first market share decline since 2008, falling from 55% in 2012 to 53%.

For the most part, CropLife 100 respondents blamed the unusually wet spring much of the nation experienced during 2013 for depressing their spring fertilizer demand. “Many customers in our area ended up switching their planting plans from corn to soybeans once the spring rains never stopped,” says Doug Busdeker, senior manager, Northern farm centers for The Andersons, Inc., Maumee, OH.

And this seemed to be the case on a more widespread basis as well. When asked to characterize the level of challenge they faced in managing fertilizer demand during 2013, a majority of respondents (57%) described the year as “very challenging” or “more challenging than normal” for nitrogen-based products such as anhydrous ammonia and urea.

It was a similar situation with the other macronutrients as well. When it came to phosphorus, 39% of CropLife 100 ag retailers said they faced “very challenging” or “more challenging than normal” market conditions during 2013. As far as potassium/potash was concerned, 42% of respondents described their conditions as “very challenging” or “more challenging than normal” for the year.

Many ag retailers — particularly those that had closed their books before the start of the fall application season — were hoping for better luck when it came to fertilizer demand going forward.
“We are still hoping for a good fall season,” wrote Tim McArdle, vice president, general manager for the Ag Division at BRANDT, Springfield, IL, on his CropLife 100 form.

The Prospects For 2014

With a relatively flat year behind it in 2013, can the fertilizer category expect to rebound in 2014 as it has done numerous times in the past? The early indications are not entirely positive.

As everyone in the agriculture industry knows, fertilizer’s fortunes tend to tie directly to the amount of corn the nation’s growers-customers plan to plant come spring. In fact, almost half of the nitrogen fertilizer used for growing crops in America goes to growing corn.

But over the past few years, as commodity prices have stayed high, growers have planted in excess of 90 million acres each and every crop year. This has undoubtedly helped keep fertilizer demand up as well.

In 2014, however, there are signs this crop mix won’t necessarily favor fertilizer usage. According to 48% of CropLife 100 survey respondents, their grower-customers are planning to plant anywhere from 1% to 10% less corn this coming spring than they did during 2013. This would translate into a loss of up to 9 million acres of corn, placing total acreage somewhere in the low to mid 80 million acre range.

In corn’s absence, CropLife 100 retailers expect soybeans to occupy these acres. According to survey respondents, 52% of them are anticipating anywhere from a 1% to 10% increase in the soybean acres in their areas. This would place total soybean acreage in close to the 80 million acre range.

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