Fertilizer Returns As Market Leader For Top Ag Retailers

Fertilizer Pile

Ask anyone who follows the ag retail marketplace regularly to name one crop input that consistently has driven industry growth since 2000, and chances are the answer back will be the word “fertilizer.” Indeed, from a base of less than 40% at the start of the century, fertilizer has constantly outperformed the rest of crop inputs and services represented in the annual CropLife 100 survey of ag retailers, growing to account for more than half of all sales.

Of course, there has been one very important exception to this general rule of thumb — 2008. Early in that year, fertilizer was riding high on both price and usage, spurred on by a record number of corn acres being planted by growers hoping to take advantage of the then-exploding market for ethanol. Very quickly, fertilizer prices rose and all crop nutrients kept pace. For example, in August 2008, sulfur was selling for more than $800 per ton. Based upon recommendations by industry experts and producers, ag retailers kept buying all crop nutrients at these inflated prices, banking on the fact that still higher prices were just a few days down the line.

But then, the bottom dropped out of the market. Crop prices stumbled, which caused growers to virtually stop buying fertilizer for fall application work in 2008. Just as quickly, fertilizer prices tanked and the same sulfur that was selling for $800 per ton in August could be had for as little as $50 per ton by year’s end. Consequently, ag retailers were forced to write down hundreds of million dollars of fertilizer inventory at the end of 2008. Fertilizer sales, which had been on an impressive growth curve toward $10 billion among CropLife 100 retailers during 2007, retreated to $9.2 billion instead and a 49% share of all input sales.

“Clearly, 2008 was a watershed year for fertilizer,” said The Fertilizer Institute President Ford West at an industry roundtable discussion held in January 2009. “It was cheap and plentiful and had always been there. Then everything changed and everyone was caught unprepared.”

A Nice Recovery

During 2010, fertilizer sales did manage to regain 10% of their value, topping the $10.1 billion and holding steady at a 49% market share, according to the CropLife 100 survey. But could these gains hold in 2011?

Luckily for the industry, the answer to this question was an emphatic “yes!” According to CropLife 100 retailers, their fertilizer sales topped $12.7 billion in 2011, up an impressive $2.5 billion from 2010. Better still, since this 25% growth rate easily topped the industry average, market share for fertilizer has increased to 53%. This not only represents a high-water mark for fertilizer sales within the CropLife 100, but is an incredible 11% market share bump from the percentage of crop input sales fertilizer represented in 2000.

For 2011, all parts of the fertilizer segment were up. According to CropLife 100 respondents, 87% of them had fertilizer sales increases this year ranging from 1% to more than 5%. Only 9% reported fertilizer sales declines ranging from more than 5% to 1% while 4% saw flat fertilizer sales. Likewise, 83% of CropLife 100 retailers had increased micronutrient sales compared with 6% recording declining sales and 11% with their sales holding steady.

“There’s no question fertilizer was the biggest gainer when it came to sales volume during 2011,” says Steve Mossbarger, facility manager for the Crop Production Services location in Washington Court House, OH. “We were literally shipping out fertilizer almost as fast as we could get it out of our storage houses all season long.”

Less Urgency On Contracts

With things going along so well in the fertilizer segment, ag retailers seem content to let traditional market practices run the show. For example, take fertilizer contracts.

Back during the crash of 2008, there was a massive cry from ag retailers for the use of formal fertilizer contracts with their customers. This was motivated by the need to protect themselves and their businesses from grower-customers backing out of handshake agreements to purchase fertilizer at a set (and normally, higher) price. In fact, J. Stephen Lucas, president of Jayhawker Consulting Co., LLC, addressed this industry call at the annual Agricultural Retailers Association (ARA) meeting in late 2009.

“In the grain business, using contracts is second nature,” said Lucas. “We don’t do anything without that confirmation. I’m horrified that people buy and sell stuff without contracts. Sure, you can view your grower-customers as friends and good old buddies, until there’s a $100 per ton difference in the fertilizer price. Then, without a formal contract in place, you may find out that grower-customer isn’t such a good old guy after all.”

As a result, ARA formed the Fertil­izer Contract Task Force with the objective of developing an association-branded fertilizer contract confirmation that specifies the mutual agreed upon terms of buyer and seller between any two businesses. A sample of this document was introduced to ag retailers shortly thereafter with the hope that it would be adopted by the industry as a new standard for doing business.

But this apparently hasn’t happened. When CropLife 100 retailers were asked to gauge the following statement — most retailers use fertilizer contracts — 66% said this wasn’t the case. Only 34% said this statement was true. According to some retailers, the use of contracts is still a very selective process.

“In our market, we only use the ARA contracts for our urea,” says Bill Hubbell, general manager for Wilco-Winfield in Mt. Angel, OR. “It hasn’t made sense for us to use them with our other fertilizer sales, however.”

Of course, some ag retailers say the results from the CropLife 100 survey don’t tell the whole story. “Contracts are out there and being used,” said one retailer at a recent industry roundtable event. “Everyone I know wants to protect themselves from an unexpected market downturn, and formal contracts with growers allow you to do this.”

So perhaps this issue will once again gain some industry traction if the ag market really is in the midst of a second economic bubble, as some analysts believe. If this happens and the market unexpectedly turns south, the call for fertilizer contracts could once again get louder.

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