Going into 2007, it certainly appeared that ag retailers were in for one incredible sales year. As the weeks went on, early projections of 3 million more acres of corn going into the ground doubled and then doubled again, setting the stage for one of the best input sales years in memory. It looked like everyone would make a lot of money, even if they had to scramble a little to keep up with an increased workload and demand for products.
And that’s exactly what happened.
In almost every case, ag retailers credited a single source for their good sales fortune in 2007 — corn. The equation worked something like this: more corn acreage =
more inputs = more sales. “Increased corn acreage was a huge boost for 2007,” said Denny Myers, president of Myers, Inc. This sentiment was echoed on virtually every CropLife 100 form received by our staff.
To appreciate just how deeply this corn acreage trend impacted the entire marketplace, consider how well each of the four major input/service areas tracked by the CropLife 100 — fertilizer, crop protection products, seed, and custom application — performed in 2007. In a normal sales year, perhaps half of these segments will experience sales gains and half will record sales losses. In an exceptional year, three out of the four will prosper with the final one accounting for the brunt of overall sales declines. This is the pattern that played out in 2006 as crop protection sales dropped 13% from the 2005 total, dragging down the entire market in the process.
If gaining sales ground in three out of four areas counts as an exceptional year for the CropLife 100, then 2007 must be labeled as an incredible year for the industry. Or unbelievable. But no matter how it is labeled, the bottom line on 2007 is simply this — every one of the four segments increased sales at the retail level.
Let that sink in for a moment — in 2007, no one segment suffered at the expense of another. Every one of them prospered.
Much Fertile Ground
Given that increased corn acreage was credited as the major industry driver in 2007, it should come as no surprise that the fertilizer segment benefited the most. According to the numbers recorded in CropLife 100 surveys, fertilizer sales grew a robust 13.6% in 2007 to more than $6.7 billion. With this gain, fertilizer further cemented its status as the top crop input, market share-wise, by accounting for 46% of total input revenue in 2007, up 2% from 2006. With another year or two of similar growth, the fertilizer segment could easily control 50% of the total crop inputs market among CropLife 100 retailers by the end of decade.
Even more telling, fertilizer was far and away the most profitable crop input for many retailers. In each year’s CropLife 100 survey, we ask respondents to rate if their sales increased, decreased, or stayed the same from the previous year. Normally, the numbers for the various inputs average out to 60% increases, 30% decreases, and 10% no change. This historic trend played out with fertilizer in 2006 with 65% of respondents up, 29% down, and 6% flat.
This year was an entirely different story, however. For 2007, an incredible 96% of CropLife 100 retailers had fertilizer sales up from their 2006 totals. Only 3% reported fertilizer sales declines, with the remaining 1% seeing no change from the prior year. This sales growth outpaced even biotech seed, which historically leads all crop inputs in increased sales volume year after year with a percentage in the mid-80s.
Despite these impressive sales gains, CropLife 100 retailers are worried that the fertilizer segment could present problems moving into the 2008 growing season. When asked to list the factors that could be expected to limit their sales growth in 2008, the overwhelming choice was “rising fertilizer cost/tighter fertilizer supply” at 36%.
“The uncertainty of fertilizer supply and pricing is a problem in a competitive market,” says Wayne Ganser, vice president, research and development for Jay-Mar, Inc.
For the other big crop input segment, crop protection, 2007 was something of a godsend. In 2006, virtually all of the lost revenue among CropLife 100 retailers came from this segment, with sales dropping $800 million for the year. Going into 2007, retailers were uncertain crop protection could recover this lost sales ground.
But recover it did — and then some. According to CropLife 100 retailers, their crop protection product sales increased 3.8%, from $5.3 billion in 2006 to more than $5.5 billion in 2007. Better still, 76% of respondents indicated their crop protection product sales increased 1% to more than 5% for the year. In 2006, only 42% of CropLife 100 retailers could make this claim. About the only negative for the segment was the fact that its sales growth did not keep up with that of the overall marketplace. As a result, crop protection products now account for 37% market share among crop inputs, down 2% from 2006.
Seeds Of Discontent
For the seeds segment, 2007 continued an uninterrupted string of sales gains. This portion of the crop inputs universe saw revenue grow 13.3% to $1.7 billion. This kept the segment’s market share at 11%, but significantly, six CropLife 100 retailers reported that their seed sales now outpace their crop protection sales. Only three retailers could make this claim in 2006.
Not surprisingly, biotech seed continued to expand at a much faster sales pace than its traditionally bred cousin. In 2007, 89% of respondents said their biotech seed sales grew 1% to more than 5%, up from 84% in 2006. Meanwhile, only 29% of CropLife 100 retailers recorded revenue gains for traditional seed, with 46% seeing declines ranging from 1% to more than 5% and 25% seeing no change in sales.
There are a few dark clouds looming for the seed segment, however. For several years, a portion of CropLife 100 retailers have listed eroding seed margins as one of their Top 5 limiting factors to continued future growth. In 2006, 17% indicated this was the case.
This year, the percentage dropped slightly to 11%, but CropLife 100 respondents were much more vocal regarding their difficulty making any seed money. “Seed sales continue to show eroding margins,” wrote Peter Vail, chairman of Carolina Eastern Vail, Inc. on his CropLife 100 form. “We will continue to de-emphasize seed sales.”
Jim Rakestraw, president of Sur-Gro Plant Food, echoed this view. “We can’t make any money in seed,” he wrote. “It won’t cover the expenses.”
Last but not least, custom application sales grew 3.4% in 2007 to $827 million. This was good enough for the segment to maintain its 6% market share among crop input segments. For the most part, CropLife 100 retailers credited the strong performance of fungicide applications on corn with boosting their overall revenues.