Market Overview: Recalibration Time

Hindsight is 20/20 goes the old saying, and today’s ag retailers are most definitely seeing things clearly. Considering everything that happened in the years leading up to 2009, most agree that it was inevitable that the good times would come to a quick, painful end. Still, some were caught off-guard when the dream years of 2007 and 2008 so rapidly gave way to the nightmare that 2009 became.

“During 2008, ag retailers had one of the best years they’ve ever had,” says Jim Shelton, agronomy manager for Landmark Service Cooperative, Cottage Grove, WI. “Heck, it was the best year anyone has ever had. Not to sound too bold, but I didn’t know this business could be so profitable.”

And the good times did indeed roll for ag retailers in recent years. In 2007, as the nation’s growers jumped on the corn bandwagon to feed the expected expansion of ethanol into the country’s energy pipeline, ag retailers ranked in the CropLife 100 saw their input and service sales increase more than $1 billion to $14.7 billion. In 2008, these sales grew more than $4 billion, topping out at a record $19.1 billion. In both years, all the crop inputs and services ag retailers offered to grower-customers — fertilizer, crop protection products, seed, and custom application — managed to simultaneously grow their total sales and market shares.

Likewise, grower-customer income increased to just shy of $90 billion, buoyed by high commodity prices for all crops. In the 20-plus-year history of the CropLife 100 retailer survey tracking industry fortunes, this was unprecedented.

The Trouble With Fertilizer

The first hints that this prosperity bubble was about to burst came in fall 2008. As ag retailer and grower-customer coffers grew, so did the costs for most crop inputs. In particular, fertilizer prices shot up at an incredible pace, doubling or sometimes tripling in a matter of months. Anticipating even higher prices in the months leading up to fall application work, many ag retailers were motivated to buy up as much fertilizer as they could store during summer 2008.

Then, the backlash began. Grower-customers stopped buying fertilizer. Prices began to drop, but a wet fall season kept most grower-customers from contracting for application work to be done.

“This was the most challenging year for profitability ever,” says Shelton of 2009. “Not because we had a lack of performance, but everyone got caught upside down on fertilizer. Many companies topped out their fertilizer inventories because they were afraid prices would go even higher. Other companies couldn’t get enough capital to do that and let their inventories go down. When the market crashed and burned, the companies that didn’t plan ahead looked like geniuses compared to the rest of us.”

Even with this serious decline, the overall numbers for ag retailers in 2009 weren’t that bad. For the year, CropLife 100 companies recorded $18.9 billion in revenue, off a mere 1% from the 2008 total. But, according to Shelton, this doesn’t paint a complete picture of the state of the industry in late 2009.

“Many companies end their fiscal years at the end of September, so profits were easier to come by with them missing the final quarter of 2008,” he says. “The bottom line is that fewer tons of fertilizer were sold in 2009, but the dollars received for those tons ended up being higher.”

Grower-customer income levels bear out this market view. According to the data compiled by USDA, net farm income for 2009 dropped 38% to $54 billion. This figure is off $33.1 billion from the 2008 number and almost $10 billion off from the historic net farm income average of $63.6 billion.

This decline hasn’t improved grower-customer moods, says Roger Gordon, agronomy manager at Grainland Coop, Holyoke, CO. “Not only was income down, but the weather in our area has been terrible,” says Gordon. “When I’ve talked with our customers on their attitudes regarding 2009, only around 30% say they are happy with how things turned out for them. From the majority, I’ve gotten a sigh of relief that they’ve made it through the 2009 season.”

Better Times Ahead?

“Through” isn’t quite the watchword for many ag retailers, however. Looking at the state of today’s ag retail industry, many dealerships and cooperatives will continue to suffer some serious hangovers from what happened in 2009 for a while yet. “As we move into 2010, we are still dealing with the headaches of fertilizer re-valuation and paying for business decisions we made in 2008,” says Landmark’s Shelton. “Right now, we are looking at making the same margins on some of these inputs that we did four or five years ago, back in 2004 and 2005.”

Retailers that stuck to their guns on fertilizer against the plunging open market price spent countless hours with growers trying to quell frustration and maintain trust. Both Dave Coppess, president of Heartland Co-op in West Des Moines, IA, and Tom Fullenkamp of Golden Furrow Fertilizer in Eldon IA, are moving toward a more “just-in-time” approach to purchasing nutrients. “We’ve stopped buying until the farmers start wanting to deal,” says Fullenkamp.

Adds Coppess: “After last year’s experience with the fertilizer meltdown and its repercussions, we are buying in small layers, trying to stay ahead of grower orders without bringing in excessive inventory.”

Still, according to data from the 2009 CropLife 100 survey, ag retailers are positive 2010 will be a good year for their businesses. When asked to rank their level of confidence in being profitable in 2010 on a scale of one to 10, 58% of respondents chose a seven or higher. Another 32% thought that 2010 would rank between a four and six on the profitability scale. Only 10% said they expect 2010 to be a three or lower.

On the negative, in more recent phone interviews for this report, there was significant concern about profitability vs. sales.

Coppess’ note of caution was typical: “In terms of profitability, I am very concerned because of some of the aggressiveness of competitors trying to regain market share from the river market and alternative sources that sprouted up last year. People are fighting with price and not value.” This, he says, points to more traditional levels of profitability vs. recent years. In other words, it’s time to recalibrate.

Despite the challenges, most ag retailers remain positive that the industry can weather the next few years and emerge stronger by the middle of the 2010s. “I believe the future of the ag retail business is positive,” says Dan Kennedy, general manager for Ritter Crop Services, Marked Tree, AR. “As growers get larger, they will need more help to keep their farms profitable. As many of them double their farm size, they will need the expertise and equipment support only ag retailers can supply them with to be successful. Better yet, I think the large majority of growers realize that this is the case.”

Leave a Reply

Management Stories
ManagementMACA 2014: The State Of The Agricultural Industry, And Then Some
October 9, 2014
The trade association’s annual gathering featured speakers from across agriculture and beyond. Read More
StewardshipA Multi-Layered Approach To Water Quality
October 6, 2014
Illinois event highlights research and technology designed to better monitor and improve water quality — and the benefits of cooperative, coordinated effort. Read More
StewardshipMichigan Agriculture Leaders On Toledo Water Ban: We Want To Be Part Of The Conversation
August 8, 2014
Leaders of Michigan agricultural organizations said Thursday that the government should not have a “knee-jerk reaction” based on last weekend’s water ban in Toledo due to fertilizer run-off in Lake Erie. Read More
ManagementRussia Bans U.S. And EU Ag Product Imports In Ukraine Sanctions Battle
August 7, 2014
Russian President Vladimir Putin has banned the import of agricultural goods from countries that have imposed sanctions on Russia. Read More
Top 100 Articles
CropLife 100Pinnacle Agriculture Acquires Minnesota Retailer
April 14, 2015
Pinnacle Agriculture Holdings, LLC, ranked No. 6 on the CropLife 100,  has successfully acquired Liebl Ag, LLC in Ada, MN.  Read More
CropLife 100CHS, Aurora Cooperative Complete Fertilizer Storage, Grain Shuttle Loading Facility
April 13, 2015
CHS Inc., the nation’s leading cooperative and ranked No. 5 on the CropLife 100, and Aurora Cooperative (ranked No. 21) Read More
CropLife 100GROWMARK Acquires Missouri Refined Fuels Terminal
April 2, 2015
Bloomington, IL-based GROWMARK and Magellan Pipeline Co. have entered into an agreement in which GROWMARK will acquire the refined fuels Read More
CropLife 100Wilbur-Ellis Acquires South Dakota Retailer
April 2, 2015
Wilbur-Ellis Co.’s Agribusiness Division, a recognized leader in precision agriculture technology and the distribution and marketing of plant protection, seed Read More
CropLife 100The McGregor Co. Closes Smith-Kem Acquisition
April 2, 2015
The McGregor Co. — ranked No. 16 on the CropLife 100 list of largest U.S. ag retailers — has completed Read More
CropLife 100BRANDT Commemorates National Ag Day
March 20, 2015
The Illinois agriculture community gathered at BRANDT global headquarters on March 18 to celebrate National Ag Day behind this year's theme Sustaining Future Generations. Read More
Latest News
StewardshipTFI Announces Renewed Financial Commitment To Fertilize…
April 24, 2015
Today, The Fertilizer Institute’s (TFI) President Chris Jahn announced that TFI and over 100 partners will more than double existing Read More
Industry NewsMACA Names New Ambassador Coordinator
April 23, 2015
The Mid America CropLife Association (MACA) has named Michelle Kilper as its new Ambassador Coordinator. Michelle is a graduate of Read More
ManagementAg Retailer’s Role In Local Policy Making; Raising The …
April 23, 2015
CropLife’s Paul Schrimpf and Eric Sfiligoj review their recent travels, precision ag efforts in Washington, DC, and the role of Read More
TMX-2050 In-Cab Display Launch Run Screen
Precision AgIn-Cab Computing 2015: Connectivity, Compatibility Take…
April 23, 2015
In terms of in-cab computing solutions for the agriculture market, companies like Case IH, Topcon, Trimble, John Deere and Raven Read More
USDA
StewardshipUSDA Outlines Building Blocks For Climate Smart Agricul…
April 23, 2015
Today, the USDA has announced a comprehensive and detailed approach to support farmers, ranchers, and forest land owners in their Read More
Industry NewsArysta LifeScience Welcomes New Territory Sales Manager
April 23, 2015
Arysta LifeScience North America recently announced the addition of Kaitlyn Acaster to the Canadian sales team. Acaster will fill the Read More
Crop InputsMarrone Bio Innovations Opens New Research Greenhouse
April 23, 2015
Marrone Bio Innovations, Inc. (MBI), a leading provider of bio-based pest management and plant health products for the agriculture, turf Read More
Crop InputsDuPont Acquires Taxon Biosciences
April 23, 2015
DuPont has agreed to acquire Taxon Biosciences, Inc., a leading microbiome discovery company. This acquisition will build on DuPont’s in-house capabilities Read More
Farmer on tablet
ManagementStudy: Consumers Don’t Care If U.S. Farmers Feed …
April 23, 2015
“We’re feeding the world” is a mantra often used by those involved in farming and food to build support for Read More
Industry NewsCorporate Responsibility Magazine Names Monsanto One Of…
April 22, 2015
Corporate Responsibility Magazine (CR Magazine) named Monsanto Co. to its 100 Best Corporate Citizens List for 2015. This is the Read More
FertilizerSpring Nitrogen Management: Form And Timing
April 22, 2015
Most corn producers have planned their spring nitrogen program for 2015, and many have already started to implement their program. Read More
FMC 3Rive 3D
Industry NewsFMC Corp. Completes Acquisition Of Cheminova
April 22, 2015
FMC Corp. has completed the closing of its acquisition of Cheminova A/S, a multinational crop protection company based in Denmark Read More
SoftwareSyngenta Expands AgriEdge Excelsior Nationwide For 2015
April 22, 2015
Growers across the country can now take the guesswork out of improving their farm’s production, land value, farm stewardship and Read More
Cornfield near Sioux City Iowa
HerbicidesU.S. Regulators May Start Testing Food For Glyphosate R…
April 21, 2015
U.S. regulators may start testing food products for residues of the world’s most widely used herbicide, EPA told Reuters’ Carey Read More
FungicidesBRANDT Adds Zonix Biofungicide To Portfolio
April 21, 2015
BRANDT has added Zonix biofungicide to its rapidly expanding line of organic and sustainable products. Zonix is a contact fungicide that Read More
ManagementMissouri Experts: Spring Planting Slow Start Won’…
April 20, 2015
In the first of the agronomy teleconferences with Extension specialists, University of Missouri Extension climatologist Pat Guinan said the slow Read More
Carl Casale of CHS
Industry NewsCooperative CHS Reports Net Income Of $471.5 Million Fo…
April 20, 2015
CHS Inc., the nation’s leading farmer-owned cooperative and a global energy, grains and foods company, has announced company net income Read More
Industry NewsCHS Insurance Names New Director Of Sales
April 17, 2015
Bryan Lewis has been named director of sales for CHS Insurance, the nation’s largest agribusiness insurance broker and full-service insurance Read More