Fertilizer Market Volatility: The Elephant In The Room

Fertilizer pile

For the second time in three years, retailers are on pins and needles over the state of the fertilizer market, as the usually gentle swing of the market pendulum took a violent swing from bloated, expensive oversupply in 2008 to nail-biting undersupply in the U.S. market in 2010.

This year, it was a perfect storm of historically ideal harvest weather, high crop prices, globalization in agriculture and sensible risk aversion that has left many retailers with the precise opposite problem this fall and winter as existed two season ago — not enough fertilizer to go around. Unfortunately, there isn’t really a lesson to be learned — retailers once again thought they were doing the right thing, only to wind up disheartened, frustrated and searching for answers.

A Sickening Ride

Flash back to the summer of 2008, when retailers followed the well intentioned advice of industry experts and filled their bins to capacity with expensive fertilizer on the understanding that the high prices were not going down anytime soon. Commodity prices were similarly sky high and few people foresaw what was to come — a quick and colossal crash in the price of both fertilizer and grain that would leave retailers holding thousands of tons of overpriced fertilizer that no grower wanted to buy given the price on the open market.

For most retailers, it was a nightmarish time from post-harvest 2008 through the start of 2009, and the options for carrying forth with business largely unpleasant. Tons of fertilizer could be written down, giving back an unhealthy chunk of 2008′s profit. Or retailers could push growers to honor their original commitment, and suffer the slings and arrows of their customers, many of whom failed to sell their crop before the price of grain crashed. And for some businesses, especially smaller cooperatives caught up on the wrong side of the grain market, it meant the end of the line through sale, merger or closure.

Mother Nature also turned against agriculture last fall and winter, delivering moisture and cold that pushed harvests back as much as two months beyond the norm and effectively thwarted fertilizer application season. But mercifully, spring got off to a rapid start and focused retailers and growers on moving forward.

“Last fall we did not get on as much product as we hoped to last year, either anhydrous or dry,” recalls Kevin Mainord, sales and marketing director at MRM Ag Services, East Prairie, MO, who’s story is fairly typical. “We got froze and snowed out and didn’t get a lot of late November and December application. But this spring weather cooperated right away, and April was wide open. We ran like crazy for three or four weeks without weather knocking us out.”

Early in the season, 2010 was shaping up to be a “normal year, whatever that means,” says Jim Howe of Star of the West Milling, Frankenmuth, MI. “Crop prices had fallen, and it looked like that was going to be the trend, and fertilizer prices had stagnated.”

Endless Summer

In the midst of a dry summer that no one knew would last the entire season, Larry Arndt, president of MaxYield Cooperative, West Bend, IA, kept a copy of an article from June 22 in his desk to illustrate the volatility in the market. “The article stated that because of low grain prices, farmers would be cutting back and not spending like they should,” says Arndt. “Farmers would opt for maintenance of fertility because corn was still not profitable. The overall economy of farming was good, but growers in June were saying, ‘let’s stay with what we ordered last year, or maybe we could cut that back a little bit.’”

Additional purchases of fertilizer were made during the summer based on these modest indicators. And remembering the lesson of 2008, many retailers opted to stock up at levels closer to their anticipated need rather than filling up the bin.

“When we get to August and we start to make some new fertilizer purchases for the fall, we have no idea that our growers are about to move from average levels of applications to 25% to 50% higher than average,” says Arndt. “Farmers had backed phosphate and potash off and were looking to maintain and not build. But now yields are coming in and in October, prices are still good and they want to spend money.”

USDA’s lowered harvest projections released in Sep­tember set off a crop price runoff, putting growers in the mindset to buy and build fertility. Normally this would be cause for unbridled celebration, but MaxYield is not alone in having made modest fertilizer commitments for the fall and winter application season.

“It was all good until we got to the point where there was no fertilizer supply out there to replenish our bins,” says Arndt. “Now, we have an extremely aggressive client requesting fertilizer at a rate we have never seen before, but now we are waiting for product.”

To add to the pressure, dry harvest weather in many locations in the Midwest through the fall meant that growers were done and ready for fall application in record time. “In northwest Iowa, we had an open fall with little rain,” says Arndt. “We started harvesting in September and did not stop for more than two or three days. Now the guy is done and the fields are black, we have a potentially huge anhydrous season ahead of us and we are now on allocation. You could have planned for a lot of scenarios, but we’ve never seen anything like this before nor could we have planned for it.”

“The guys I work with on procurement and sales have been in the business for 30 years, and they say they have never seen it this bad,” says Devin Mogler, vice president of agronomy operations for Farmers Cooperative Co., Ames, IA. The company says getting additional supply has been a headache. “Trains have been pushed back and trucks backed up,” he says. “Rather than send us 65 or 85 car units, we are getting spoon fed four to 10 cars at a time, and sometimes even one.” Suppliers had been keeping up so far, but at presstime, Mogler says they were within three to five days of running out based on the amount being applied.

Some Good News

Not all the news is bad. Some retailers did bet on higher consumption and have so far avoided the shortages. “We have been very fortunate up until (early November) all plants were running ,” says Mike Moser, vice president of agronomy at Cooperative Plus, Burlington, WI. “The competitors on all sides of us have been out of product for two or three weeks. We have two trains arriving this afternoon with 5,000 tons of potash to haul in here shortly.

“I think we got a little more aggressive and bought a little more than we needed,” he continues, “but in the end we still needed product. We looked at potash market and decided there was an opportunity for the price to increase. So fortunately we have potash coming in $80 under market, and that should help to have a pretty good year.”

Some won but many are struggling to manage the wild pendulum swings in today’s fertilizer market. With no real tools available to manage the risk, it looks like volatility will be the norm for some time to come.

Leave a Reply

State of the Industry Stories

State of the IndustryAgriculture’s Troubled Waters
March 3, 2014
Water quantity and quality issues threaten to hamper agriculture on a wider scale in the not-too-distant future. Technology breakthroughs and improved practices are providing potential solutions. Read More
State of the IndustrySponsor Profiles: Simplot, SST And WinField Support CropLife State Of The Industry Report
January 8, 2014
The sponsor partners of the CropLife State of the Industry report have demonstrated ongoing leadership including their support of this report. Read More
State of the Industry2014 State Of The Industry: Agricultural Concerns Creep In
January 2, 2014
With many strong sales years under its belt, the agricultural community is hoping for another positive growth experience in 2014, but mindful of a few challenges that might keep this from happening. Read More
State of the IndustrySeed Systems Top Watch List
January 2, 2014
Retailers are closely following herbicide tolerance and drought resistance traits. Read More

Trending Articles

HerbicidesAdjusting To The New Reality Of Weed Control
November 4, 2014
Even with new cropping systems being readied for market introductions, weed control will remain a challenge for many. Read More
StewardshipResponsibleAg Begins Auditor Training
October 31, 2014
ResponsibleAg auditor training is now underway at the Ford B. West Center for Responsible Agriculture in Owensboro, KY. Read More
InsecticidesNew Research Study Shows The Value Of Neonics
October 29, 2014
The study evaluated seed treatment, soil and foliar uses of neonicotinoid insecticides in the U.S. and Canada. Read More
Crop InputsPlatform Specialty Products To Acquire Arysta LifeScience
October 20, 2014
Once the acquisition is complete, Platform Specialty Products will combine Arysta LifeScience with previously acquired companies Agriphar and Chemtura Crop Solutions. Read More
Seed/BiotechMonsanto Offers New Support For Ferguson, Area Communities
October 8, 2014
Monsanto Co. has committed $1 million in new support for several collaborative efforts in Ferguson, MO, and surrounding communities in North St. Louis County. Read More
Seed/BiotechUnapproved Genetically Modified Wheat Found In Montana
October 3, 2014
USDA reports that one year after discovery of Monsanto's unapproved wheat in a single Oregon field disrupted U.S. wheat export sales, the GMO wheat has again been found in Montana. Read More

Latest News

soybean field
Crop InputsABM Patents Microbial R&D Technique
November 25, 2014
Focused Microbial Diversity (FMD) is a newly patented technique employed by Advanced Biological Marketing (ABM) to research and develop microbials that will be used in ABM products Read More
Crop InputsStorage Options Help Grain Growers Go To Market
November 24, 2014
While on-farm storage in a traditional upright storage bin is one possibility for storing grain, it may not be for everyone. Read More
Eric SfiligojGiving Thanks For Another Great Year
November 24, 2014
As Thanksgiving Day 2014 arrives, agriculture has plenty to be thankful for. Read More
Crop InputsSyngenta Cost-Cutting Program To Affect 1,800 Jobs
November 24, 2014
The company's Accelerating Operational Leverage program will result in job reductions and relocations totaling around 1,800 across the company, the majority of which will occur in 2015. Read More
EquipmentAGCO Announces Operator Of The Year Finalists
November 20, 2014
Four custom applicators have been selected by AGCO Application Equipment as finalists for 2014 Operator of the Year, an honor that recognizes them as being among the top professionals in their industry throughout North America. Read More
MicronutrientsH.J. Baker Expands Tiger-Sul Business
November 20, 2014
H.J. Baker has created and filled two strategic positions in business development and sales within its Crop Performance Division. Read More
soybean field
FertilizerGeneral Mills Honors United Suppliers For Nitrogen Opti…
November 19, 2014
United Suppliers winning proposal detailed SUSTAIN, a consulting network that provides customized products and services for farmers using a needs-based system approach. Read More
EmployeesOhio AgriBusiness Association Awards $25,000 In Scholar…
November 19, 2014
Each year, the Ohio AgriBusiness Association Educational Trust scholarship program awards scholarship dollars to students enrolled in an agriculture-related field attending several state colleges. Read More
ManagementServi-Tech Names New CEO
November 17, 2014
Servi-Tech has named Greg Ruehle its new president and CEO. Read More
CropLife 100Pinnacle Ag Acquires Colorado Aerial Application Outlet
November 17, 2014
Ft. Lupton, CO-based Reck Aviation — a full-service chemical application company providing aerial crop applications of fertilizers and crop protection products — will operate as part of Pinnacle's AgOne Application Services brand. Read More
Eric SfiligojMcDonald’s Message: Biotech Crops Scarier Than Cancer
November 17, 2014
Despite their potential health benefits, one of the world’s largest potato users will pass on a new biotech offering. Read More
MicronutrientsWinField Releases 2014 NutriSolutions Results
November 14, 2014
A number of significant regional and national crop deficiency trends emerged from the 2014 WinField NutriSolutions tissue sampling program. Read More
FertilizerH.J. Baker Opens Chinese Production Lines
November 14, 2014
The occasion was the official launch of the Tiger-Sul sulphur Bentonite production line of two much anticipated fertilizer products in China, T90CR sulphur fertilizer and TZinc micronutrient enhanced sulphur fertilizer. Read More
ManagementOhio Certified Crop Adviser Program Accepting Nominatio…
November 14, 2014
The award recognizes an individual who delivers exceptional customer service for farmer clients in nutrient management, soil and water management, integrated pest management and crop production in Ohio. Read More
HerbicidesSyngenta Announces Acuron Trial Plot Results
November 14, 2014
Acuron was tested at 167 trial locations across 35 states. Trials included 95 Syngenta locations, 54 university locations and 18 distributor locations. Read More
Crop InputsVerdesian Expands Sales Force
November 13, 2014
The new sales representatives will work with growers, retail partners and distributors to oversee technical training and product education. Read More
EquipmentAGCO Raises $100K For Wounded Warrior Project
November 13, 2014
AGCO Corp. partnered with local AGCO dealers across the U.S. and Canada to raise nearly $100,000 in support of wounded service veterans. Read More
HerbicidesDow AgroSciences Announces Launch Of Enlist Duo Herbici…
November 12, 2014
It will be launched in conjunction with a stewarded introduction of Enlist corn, and seed production of Enlist soybeans in 2015. Read More