Will 2013 Be An Unlucky Year For Ag Retail?

Another new year is upon us. Now that we know the world didn’t end in December (as the Mayans predicted), we can all give thanks and look forward to another wonderful year for agriculture in 2013. In truth, many of the factors that have driven the marketplace to new heights during the 2000s remain in place — high commodity prices, an increasing global population looking for food, fuel, feed and fiber and a grower-customer set seeking to improve their operations by investing money in equipment, services or both.

On the surface, it appears that the ag industry is poised for another banner year in 2013, joining an unbroken string of ones that have occurred since the 2010s began. (And you can read more about these predictions from various industry experts in this issue.) Still, I would be lying to you if I said I was completely comfortable with such a rosy outlook for 2013. And there are two very important reasons why I think 2013 could be a bit unlucky for the marketplace.

The first is the weather. Everyone knows that better than half the Continental U.S. was gripped by a very severe drought during 2012, which ultimately shaved 10 million acres from the anticipated corn harvest when all was said and done. For the most part, grower-customers and ag retailers came through this dry spell without feeling much financial heat (largely due to crop insurance).

But the fear now among industry watchers is that 2013 will bring more of the same dry weather across much of the U.S. Early forecast models by the federal government seem to predict that 2013 has a better than 50% chance of being another year of “insufficient rainfall,” particularly in the Mid-South and Upper Midwest.

If this happens, there are many ag retailers who believe their grower-customers will not be able to survive, even with the cushion of crop insurance. “My guys can take an one-year hit losing their crops, but not two,” said one retailer at a recent industry event.

My second concern is consolidation among ag retailers. In late 2012, newly-formed Pinnacle Ag, with significant financial backing, purchased both CropLife 100 retailers Jimmy Sanders and G&H Seed in its bid to become “a top five retailer by 2017.” Meanwhile, other big players in the market such as Crop Production Services, J.R. Simplot and Wilbur-Ellis are making their own acquisitions as well. And more are certain to follow as these big players look to strengthen their market positions/penetration.

Now I’ve seen this kind of “consolidation wave” sweep over other industries I’ve covered before. As bigger companies swallow up littler ones, there is plenty of industry wealth changing hands, but overall market growth tends to stall as everything shakes out.

Minus these two factors, I would agree that everything looks just fine for ag in 2013, with plenty of positive growth and money to go around. At this point, only time will tell how lucky, or unlucky, 2013 ends up being.

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2 comments on “Will 2013 Be An Unlucky Year For Ag Retail?

  1. I believe the biggest fear in 13 is the weather. Will the drought expand or shrink is the million dollar question that everyone has a opinion and no one has a answer.

  2. If you look at farm income in 2012 it spiked upward because yields droppped by 15% and prices spiked 50%. Many farmers made more money on their crop before insurance than they did in 2011. With revenue protection insurance the windfall was even greater. Cheaper crop insurance will only give farmers more reasons to purchase protection. Who's going to go out of business with record income? Retailers are the ones who will feel the pain here.

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