PACE Annual Report 2007

Matt Hopkins Posted by Matt Hopkins|September 8, 2008

Fertilizer Loading

1. Biofuels

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This was the topic of conversation during 2007. Although the marketplace was anticipating more corn acreage during the year, practically no one predicted that the industry’s final tally would top more than 93 million acres. Not surprisingly, this translated into substantial increases in all crop input areas for the majority of ag retailers.

Now, however, many PACE members say the boom times are over for biofuels. Due to increased costs for raw materials and feedstock, many of the nation’s ethanol plants are seeing their profits erode significantly. This has already caused a few manufacturers to put their new ethanol plant construction plans on hold until the situation stabilizes somewhat.

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As a result of these moves, many council members believe corn acres will inevitably decline in 2008, with more acreage moving over to other high cash crops such as soybeans and wheat instead. Indeed, with carryover stocks for these crops at lower-than-historic levels, crop prices have increased significantly (with soybeans topping $10 per bushel in some cases).

Still, retailers can expect government support for alternative fuel efforts in agriculture to continue for years to come. While corn might be the short-term solution, some council members believe retailers need to keep an eye on the development of other “high energy” crops such as elephant grass and switchgrass (or cellulsic forms).  Although these crops take years of capital investment before they can be harvested, they produce significantly more ethanol when processed than corn.

As one PACE representative put it: “Corn is sexy today because of ethanol, but growers will ultimately grow what makes the most money.”

2. Fertilizer

Even though it was the largest crop input in terms of overall sales in 2007, fertilizer prices have skyrocketed in the past year. For example, PACE Council members report that domestic natural gas prices have increased approximately 200% between 2002 and today. This has prompted domestic producers to permanently close 25 ammonia plants located in the U.S., causing production to drop 42%. This means more fertilizer — particularly the nitrogen-based forms that corn growers crave — is coming from overseas sources, but delivery times have doubled because of this. Also, as the U.S. dollar has lost ground vs. the Canadian dollar, many retailers are facing renewed fertilizer price pressures, as 20% of this nation’s fertilizer supply comes from Canada.

Also, representatives say that “green” efforts regarding fertilizer are increasing in frequency. Already, environmental concerns are taking more of the center stage in the nation’s capital. As a result, Council members predict all fertilizer types (and as a consequence, the ag retailers that carry them) could be in the line of political fire.
Greenhouse gas legislation already in the works is expected to impact natural gas prices, driving them even higher than today’s record levels. There is also the possibility that the industry could find itself being taxed on ammonia use and urea application.

3. Crop Protection

As grower-customers planted more corn in 2007, many of them turned to fungicide applications to help boost their yields. Many Council members expect this trend to continue into 2008, but warn that a lack of application equipment could hinder it somewhat. Aerial applicators were generally able to get product down, but not within the window recommended by the manufacturers.

Weed resistance — a major problem in some regions in the past few years — continues to create challenges. Retailers working with the major crop protection product manufacturers have done a good job on this issue, but more continuing education and training is needed.

4. Seed/Biotech

Even though seed is becoming more ingrained into the ag retail community, it still offers problems for many retailers when it comes to profitability. As more grower-customers look to biotech seed to replace their crop protection product needs, seed producers have added new options to their offerings, including using triple-stacked traits, which have become very popular with growers.

Retailers, to be true trusted advisor to the grower, must be highly knowledgable about how these traits as they complement locally successful varieties/hybrids, as well as how they fit into a total cropping plan. As one council member said: “Seed is still an emotional decision for growers, so seed variety is a key. Each seed type has its own distinct personality as far as the customer is concerned.”

5. Equipment

Although equipment manufacturers have steadily increased boom length in recent years (with 120-foot booms now the norm), conventional wisdom says this trend has just about run its course. Moving into 2008, many believe that manufacturers will focus on increasing machine productivity through the use of newer technology such as automatic steering, boom height, and spray nozzle control instead.

With crop prices as well as input prices at all-time highs, many growers are expected to turn to precision agriculture practices to squeeze more yield and dollars out of their production investments. This should open the door for broader and deeper precision adoption in 2008.

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Hopkins is Senior Online Editor for the CropLife Media Group at Meister Media Worldwide. See all author stories here.

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