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

Liquid Fertilizer Storage tanks
State of the IndustryComplex Fertilizer Market Brings Mixed Feelings
January 5, 2016
Declining fertilizer prices and plentiful supplies should be good news for growers facing low crop prices. But they and their Read More
Asmus Farm Supply crop protection products in storage
State of the Industry2016 Crop Protection Outlook: The Guessing Game
January 4, 2016
One would naturally assume that retail sales of crop protection products in a contracted market would themselves be contracted, but Read More
Seed corn bags in storage
Special ReportsThe Outlook For Seed In 2016
January 3, 2016
Among all crop input categories going into 2016, the seed category has as many questions regarding which direction it will Read More
Wilbur-Ellis’ new fertilizer blending facility, located in Mott, ND, was designed by A.J. Sackett & Sons.
State of the IndustryBuying Intentions Survey: Retailers Taking A Prudent Approach In 2016
January 2, 2016
The CropLife® magazine Buying Intentions Survey made its debut last year to gauge current industry trends against the retailer’s plans Read More
Trending Articles
ASMARK 2016 Retailers Live! Tour - CPS
CropLife 100CPS Acquires Texas Retail Operation
August 23, 2016
Crop Production Services (CPS) has acquired the assets of Larry’s Chemical and Spray, Inc., for an undisclosed amount in an Read More
Key Cooperative Marcus Construction Steel Building
Retail FacilitiesMarcus Construction Builds High-Speed Agronomy Center For Key Cooperative
July 7, 2016
Key Cooperative in Grinnell, IA, wanted a state-of-the-art Agronomy Center to better serve its customers. Marcus Construction delivered exactly that. Read More
Heritage Cooperative
Retail FacilitiesKahler Automation Designs State-Of-The-Art Facility For Heritage Cooperative
July 4, 2016
Heritage Cooperative in Marysville, OH, needed an efficient liquid, dry and grain facility to serve the many needs of their Read More
The Andersons Waterloo
ManagementFirst Indiana Facility Certified Under 4R Nutrient Stewardship Certification Program
June 27, 2016
The 4R Nutrient Stewardship Certification Program has announced that The Andersons, Inc.’s Waterloo, IN, facility has been added to its Read More
Food IT
Industry NewsCalifornia Event Will Mix Ag And Tech Professionals To Explore IT Solutions
June 20, 2016
Silicon Valley is hot on agriculture, and an upcoming event in California will bring together the food and tech industries Read More
Monsanto Luling Plant
Eric SfiligojWhat’s Next For Monsanto?
May 31, 2016
For the folks at Monsanto’s headquarters in St. Louis, MO, it has been an eventful few weeks. Back on May Read More
Latest News
Soybean Field
FungicidesSyngenta Launches Interactive Tools For Vibrance Seed T…
August 30, 2016
As part of the ongoing commitment to provide growers and retailers with the most current crop protection products and agronomic Read More
EquipmentAGCO Celebrates Manufacturing In Minnesota
August 30, 2016
AGCO Corp. welcomed the I Make America campaign to its Jackson, MN, factory last Friday to celebrate the contributions of manufacturing Read More
MAGIE 2015 Overview
Eric SfiligojThe Read From MAGIE
August 29, 2016
As I write this column, I’ve just returned from the annual Midwest AG Industries Exposition (MAGIE) in Bloomington, IL. Being Read More
EquipmentAGCO Opens Nominations For 11th Annual Operator Of The …
August 29, 2016
AGCO Corp. is now accepting nominations for 2016 Operator of the Year, which recognizes hard-working applicators across the country. These Read More
CHS St. Paul, MN fertilizer terminal
CropLife 100CHS Completes $10 Million Renovation Of St. Paul Agrono…
August 29, 2016
CHS Inc., North America’s leading farmer-owned cooperative and a global energy, grains and foods company, has completed a $10 million Read More
2016 ShowStopper | Case IH Patriot 4440 Sprayer
Equipment5 Show-stopping Products On Display At 2016 MAGIE
August 26, 2016
For 10 years now, visitors to the yearly Midwest AG Industries Exposition (MAGIE) show have been tasked with voting for Read More
Crop InputsDuPont Pioneer: Corn Belt P and K Levels Lagging
August 24, 2016
A new DuPont Pioneer study conducted across 12 Corn Belt states demonstrates that growers may be leaving profit potential in Read More
Monsanto sign
Crop InputsCould a Monsanto-Bayer Union Be 2 Weeks from Fruition?
August 24, 2016
Via STLToday.com (The St. Louis Post-Dispatch): Merger talks between Monsanto Co. and Bayer AG are advancing after a series of Read More
EquipmentCase IH Debuts Nutri-Tiller 955 Strip-Till Applicator
August 24, 2016
With strip-till continuing to expand across new acres, Case IH designed the new Nutri-Tiller 955 strip-till applicator to help producers Read More
EquipmentCase Launches Aim Command FLEX, 25th Anniversary Patrio…
August 24, 2016
Case IH announces new AIM Command FLEX advanced spray technology for greater application accuracy, as well as special 25th Anniversary Read More
ASMARK 2016 Retailers Live! Tour - CPS
CropLife 100CPS Acquires Texas Retail Operation
August 23, 2016
Crop Production Services (CPS) has acquired the assets of Larry’s Chemical and Spray, Inc., for an undisclosed amount in an Read More
PrecisionAg Video Conference
Precision AgVideo: PrecisionAg Vision Conference
August 22, 2016
A Strategic Conference Focused on the Future of Farm Digitization and Precision Agriculture Visit precisionagvision.com and register today! Read More
Young Corn Plants
Industry NewsOABA Welcomes Nicole Wallace As Communication & Adm…
August 22, 2016
The Ohio AgriBusiness Association has hired Nicole Wallace as its communication and administrative coordinator. Wallace will help provide comprehensive communication Read More
Syngenta Sign
Crop InputsChemChina, Syngenta Receive Clearance From CFIUS
August 22, 2016
China National Chemical Corp. (ChemChina) and Syngenta have announced that the companies have received clearance on their proposed transaction from the Read More
ManagementAg Industry Shows and Rumors
August 18, 2016
Editors Paul Schrimpf and Eric Sfiligoj talk about the upcoming trade show schedule, crop protection merger updates, and content for Read More
MAGIE 2015
EquipmentMAGIE Takes The Pulse Of The Ag Retail Industry
August 18, 2016
Every year, one of the major highlights of my career as an ag journalist is attending the Midwest AG Industries Read More
MAGIE 2015 Overview
EquipmentPride In Professionalism On Display At MAGIE
August 18, 2016
The Illinois Fertilizer & Chemical Association (IFCA) is proud to partner with CropLife IRON and continue the tradition of bringing Read More
SprayersJenner Ag To Debut 25th Anniversary Edition Case IH Pat…
August 18, 2016
Visitors at the 2016 Midwest Ag Industries Exhibition (MAGIE) in Bloomington, IL, will have a unique photo opportunity, as Jenner Read More