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

ManagementExpert To Discuss Farmland Value, Rent At Farm Science Review
August 18, 2014
While cropland values in Ohio increased in the past two years, they have remained flat in 2014, declining in some cases, according to an Ohio State University agricultural economist. Read More
EquipmentAdvance Your Technology IQ At MAGIE
August 13, 2014
The Midwest AG Industries Exposition (August 20-21) is the place you need to be to see, study and evaluate how new advances in the equipment, operations, crop protection and fertility sectors can help your business prosper. Read More
HerbicidesScouting Key To Next Season’s Soybean Herbicide Program
August 12, 2014
When growing soybeans, growers need to think ahead to stay one step ahead of weeds. That means examining weed threats and evaluating which herbicides work best. 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
CropLife 100BRANDT Acquires Lemon Ag Services
August 4, 2014
The acquisition of Lemon Ag fits BRANDT’s aggressive corporate strategy of providing superior agronomic advice and services for customers in central Illinois. Read More
Eric SfiligojThe Resurgence Of Crop Protection
August 4, 2014
Plenty of new offerings over the next few years should see a rebirth for the crop protection products category in terms of market share. Read More

Latest News

Allied Cooperative Grain Plant
ManagementArcadia Co-op To Merge With Allied Cooperative
August 28, 2014
Allied Cooperative has announced that members of Arcadia Co-op voted in favor of a merger with Allied Cooperative, paving the way for the consolidation which will be effective on December 1, 2014. Read More
InsecticidesBioinsecticide VENERATE Now Registered In California
August 27, 2014
Marrone Bio Innovations' VENERATE is a new tool to help California growers control crop-damaging insect pests, fight the development of insect resistance and reduce pesticide residues on fruits and vegetables. Read More
CropLife 100Two Iowa-Based Ag Co-ops To Merge
August 27, 2014
The Board of Directors and management of United Western Coop, Missouri Valley, IA has completed a merger with Heartland Co-op, West Des Moines, IA, effective September 1, 2014. Read More
FertilizerKoch Expands AGROTAIN Nitrogen Stabilizer Portfolio
August 26, 2014
Koch Agronomic Services, LLC has added two new innovative nitrogen stabilizers to the AGROTAIN product family – AGROTAIN ADVANCED and AGROTAIN DRI-­MAXX. Read More
Seed/BiotechDuPont To Build Two Seed Treatment Centers
August 26, 2014
DuPont has announced construction on two state-of-the-art centers dedicated to developing and testing seed treatment formulations, applications and seed handling techniques in an important step toward bringing new solutions to growers. Read More
Seed/BiotechLoveland Products Acquires A Controlling Interest In Ag…
August 26, 2014
Loveland Products, a subsidiary of Agrium , has announced the company has acquired a controlling interest in Agricen, a Dallas-area agricultural biotechnology company delivering biochemical-based products for efficient and sustainable plant nutrition. Read More
StewardshipUp Close Look At The 2014 Environmental Respect Award W…
August 25, 2014
The 2014 Environmental Respect Award winners were honored recently at the 24th annual event in Wilmington, DE. Read More
Eric SfiligojAg Science Rejection Carries Consequences
August 25, 2014
As innuendo and fear dog the regulatory process, agriculture can’t get the new tools it needs to combat world hunger. Read More
LegislationFarmers Dismayed As New Farm Bill Dumps Direct Payments
August 25, 2014
The threatened end of cash subsidies to the nation’s row crop farmers dates back through at least the last two iterations of national agriculture policy legislation. Read More
MAGIE 2014 ShowStopper
EquipmentJohn Deere Again Wins MAGIE ShowStopper Award
August 25, 2014
For the second consecutive year, John Deere was honored at the Midwest AG Industries Exposition (MAGIE) for its new R4045 sprayer. Read More
CropLife 100GROWMARK CEO To Retire
August 22, 2014
GROWMARK chief executive officer Jeff Solberg has announced his retirement effective September 15, 2014. Read More
InsecticidesDuPont’s Prevathon Approved For Dry Beans
August 22, 2014
DuPont Prevathon insect control powered by Rynaxypyr has received EPA registration for foliar use on dry bean crops, including dried shelled peas and beans. Read More
ManagementNCGA DuPont New Leaders Program Enters Sophmore Season
August 20, 2014
The National Corn Growers Association and DuPont are pleased to announce the second year of the NCGA DuPont New Leaders Program. Read More
FungicidesVerdesian Links Up With Mitsui, Hokusan
August 20, 2014
Mitsui Chemicals Agro, Inc., and Hokusan Co., announced the signing of an exclusive licensing agreement allowing Verdesian Life Sciences global access to its patented technology for suppressing mycotoxin contamination in wheat and barley. Read More
SprayersUniversity Of Illinois Introduces New Spray App
August 18, 2014
University of Illinois Extension has released a new smartphone app for making sprayer-related calculations. Pesticide Spray Calculator, or Spray Calc, Read More
Crop InputsSyngenta Names New Manager Of Federal Government Relati…
August 18, 2014
Laura Wood Peterson has joined Syngenta as manager of federal government relations, based in Washington, DC. Read More
ManagementExpert To Discuss Farmland Value, Rent At Farm Science …
August 18, 2014
While cropland values in Ohio increased in the past two years, they have remained flat in 2014, declining in some cases, according to an Ohio State University agricultural economist. Read More
EquipmentDeere Announces Factory Layoffs
August 18, 2014
Deere & Co. has announced it will reduce the size of its manufacturing workforce at some agricultural equipment factories in response to current market demand for its products. Read More