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 IndustryFertilizer Bracing For Slower Demand In 2015
January 5, 2015
Following a rough 2014, ag retailers expect 2015 to remain a challenge for crop nutrient sales for a variety of reasons. Read More
Crop Protection Bulk Storage
State of the IndustryCrop Protection Rise To Continue
January 4, 2015
Economics may tempt growers to reduce pesticide use, but ensuring yields may be more important. Read More
State of the IndustryYields Start With The Seed
January 3, 2015
There’s a reason seed sales were up in 2014 — new varieties are delivering the goods. Read More
Special ReportsUSDA Announces Funding To Train And Educate Next Generation Of Farmers
April 14, 2014
Nearly $20 million in grants to help train, educate and enhance the sustainability of the next generation of agricultural producers is available through the Beginning Farmer and Rancher Development Program. Read More
Top 100 Articles
CropLife 100United Cooperative Acquires Four ADM Wisconsin Facilities
November 12, 2015
United Cooperative, based out of Beaver Dam, WI, recently acquired four grain and agronomy locations from Archer Daniels Midland (ADM) Read More
CropLife 100BRANDT Car Makes NASCAR Xfinity Series
October 29, 2015
BRANDT will join JR Motorsports with driver, Justin Allgaier, for the 2016 NASCAR Xfinity (NXS) Series season. Allgaier will pilot Read More
CHS Building exterior
CropLife 100CHS Leaders Help Shape Succession Report
October 22, 2015
Succession planning was listed as a main concern of cooperative leaders at this summer’s 15 regional CHS owner town hall Read More
Fall Harvest
CropLife 100Pinnacle Purchases Eight Regional Seed Companies
October 12, 2015
Pinnacle Agriculture Holdings has announced the purchase of eight regional seed companies to advance its seed business. Pinnacle has acquired: Read More
MRM Agricultural Service
CropLife 100Pinnacle Acquires CropLife 100 Ag Retailer
October 8, 2015
Pinnacle Agriculture Holdings, LLC has successfully acquired the Missouri-based agronomy business of MRM Agricultural Service, LLC and its affiliates (MRM). Operating Read More
Eric Jenks, Wilbur-Ellis
CropLife 100Wilbur-Ellis Opens Dry Fertilizer Storage And Blending Facility In Washington
October 8, 2015
Wilbur-Ellis Co., ranked No. 4 on the CropLife 100, has constructed and opened a 22,000-ton dry fertilizer storage and blending Read More
Latest News
HerbicidesBREAKING: EPA Pulls Registration On Dow’s Enlist …
November 25, 2015
EPA on Wednesday withdrew approval of a controversial new weed killer to be used on genetically modified corn and soybeans, Read More
FertilizerYara Tampa Ammonia Terminal Garners ResponsibleAg Honor…
November 25, 2015
Yara has received its first ResponsibleAg Certification for its Tampa, FL, Ammonia terminal location. This achievement demonstrates Yara’s commitment to Read More
ManagementReviewing The Top Ag Stories For 2015
November 24, 2015
Editors Eric Sfiligoj and Paul Schrimpf discuss the most noteworthy events from this past year in agriculture. Read More
EmployeesAgriculture Jobs May Be Plentiful, But New Grads Are Sc…
November 24, 2015
Close to 60,000 jobs are set to open up in agriculture each year for the next five years, but there's not enough grads to fill them. Read More
Radish cover crop
StewardshipCover Crops Guide Helps Growers Improve Water Quality
November 23, 2015
A publication that teaches growers the advantages of using cover crops to improve soil health and crop yields has won Read More
Crop InputsThe Andersons’ Products Receive California Organi…
November 23, 2015
The Plant Nutrient Group of The Andersons, Inc. announced today that its Humic DG and Black Gypsum DG products are Read More
Eric SfiligojNew European Study Seems To Support Glyphosate Safety
November 23, 2015
Looking at any international news over the past few years, it might seem as if the European Union (EU) is Read More
Toggle Biostimulant corn roots
Crop InputsTwo New Biostimulants Added To United Suppliers’ …
November 20, 2015
Winfield US announces the launch of two new products in the United Suppliers portfolio for the 2016 crop season, Optify Read More
StewardshipNRDC Report: Cover Crops Contain Vast Benefits
November 19, 2015
As harvest season ends and farmers in the United States ready themselves for winter, one small change could make a Read More
Fall Harvest
Seed/BiotechArysta Launches New Seed Protectant
November 19, 2015
As spring wheat growers begin planning for a strong start to their season, Arysta LifeScience North America announces RANCONA V Read More
Crop InputsInocucor Receives U.S. Patent For Microbials
November 19, 2015
Inocucor Technologies Inc., the Montreal-based agriculture biotech company, was issued patent No. 9,175,258 by the U.S. Patent and Trademark Office to protect Read More
ManagementSyngenta Rumors and ARA 2015 Preview
November 19, 2015
CropLife Editor Eric Sfiligoj looks at the latest rumors involving Syngenta selling its crop protection business and talks about events Read More
EquipmentAGCO Announces Finalists For Operator Of The Year Honor
November 19, 2015
AGCO Corp. has announced the four top operators chosen as finalists for AGCO’s 10th Annual Operator of the Year program, Read More
High Plains Aquifer
StewardshipStudy: High Plains Aquifer Overall Usage In Decline
November 18, 2015
A new Kansas State University study finds that the over-tapping of the High Plains Aquifer’s groundwater beyond the aquifer’s recharge Read More
Golden Harvest Corn healthy leaves
FungicidesArysta Launches New Corn And Soybean Fungicide
November 17, 2015
Arysta LifeScience North America has recently launched ZOLERA FX Fungicide. The highly systemic, powerful fungicide delivers broad-spectrum disease control with Read More
Young corn plants in soil
Crop InputsBioAg Alliance: Microbials Targeted For 250-500 million…
November 17, 2015
Monsanto and Novozymes have announced a new 2025 acreage target that will guide the companies’ microbials business for the next Read More
Syngenta Sign
Crop InputsSyngenta Still Being Eyed For China Takeover
November 16, 2015
China National Chemical Corp. approached sovereign wealth funds including China Investment Corp. to help pay for a potential acquisition of Read More
Cedar Country Cooperative
Eric SfiligojCooperative Consolidation Continues
November 16, 2015
As I put this enewsletter column together, we’ve just put the finishing touches on our magazine’s annual CropLife 100 report. Read More