Key Inputs Growth Pushes Industry To New Highs

By now, everyone is aware of just how nice it was to be in the ag retail business during 2011. Overall sales topped the $24 billion mark among CropLife 100 organizations, helped in no small part by a 31% jump in net farm income for the year to $103.6 billion (incidentially, the highest inflation-adjusted value growers have seen in almost 40 years).

“Our business is growing,” says Lane Mielke, sales and marketing manager for North Central Farmers Elevator (NCFE), Ipswich, SD. “We have increased our sales force from four guys four years ago to 17 now, to cover more territory and build relationships.”

Fertilizer Rules The Roost

The CropLife 100 survey results indicated a return to profitability and revenue share for fertilizer, and retailer interviews conducted for the State of the Industry report bore out this fact.

Despite a challenging spring in many areas of the country, retailers reported strong to record sales of fertilizer. “If you back up one year ago we had incredible fall and we fully expected that it would cannibalize a fair portion of our spring application,” says Jim Howe, general manager at Star of the West Milling, Frankenmuth, MI. “As turned out on par with our expectations.”

Others, like Jeff Eggleston, agronomy division manager for Hintzsche Fertilizer, Maple Park, IL, had strong fertilizer years. In 2011, we really saw big increases for phosphorus and potassium use among our growers,” he says. “Also, all nitrogen units, from UAN to ammonia, really had big rate increases.”

Howe added that slow release nitrogen sources have become very popular. “Generally they cost a bit more but growers have been excited about the return they’re getting for the extra dollars they spent,” he says. “We are selling a lot of ESN, and there has been good acceptance of it with growers.” Star of the West is also selling a lot of Mosaic Co.’s Microessentials product, which started out as a small piece of busines but has grown as farmers have found them beneficial.

There are still some nagging scars from the 2008 fertilizer debacle, but Howe, among others, sees a different market dynamic today. “The key difference is that back in 2008 we were all expecting the markets to climb, but there was a lot of material in the system. Today we’re getting notices from fertilizer manufacturers that indicate shortages and delayed shipments. That was not the case in 2008 -  we were all building inventories in the hopes of hitting a home run, but we got washed out.”

Beyond the basic macros, some retailers benefitted from increased demand for micronutrients and specialty inputs off the beaten path as growers tried different kinds of products to generate more yield.

“Miconutrients have really been working and growing for us, particularly sulfur and zinc,” says Kyle Baltz, manager at Baltz Feed Co., Pocahontas, AR. “Our growers have really tried to replenish their soils with these to help increase their yields and the ones we’ve talked with seem really pleased with the results.”

Micronutrients and plant growth regulators have been really good growth areas for us,” concurs Scott Firlus, agronomy manager for Wisconsin River Coop, Adams, WI. “All of our growers are looking for ways to increase their yields and improve the plant health of their crops, and these products have really caught on as a way to do this.”

Steve Mossbarger, facility manager at the Crop Production Serivces’ Washington Court House, OH location, says that most of its growth in inputs this year came from nutritionals rather than regular fertilizers. “It seems our growers, having more income than ever before, really focused on adding these kinds of products to their fields to boost yields,” he says.

Retailers have continued to work on facilities and logistics to accommodate the demand, including G&H Seed, Crowley, LA. The company purchased a Sackett fertilizer blending system and a Murray impregnation system costing some $1.8 million, but has increased the hourly tonnage turnaround from 70 tons to 200 tons per hour.

Fungicides: Room To Grow

Use of fungicides on commodity crops for plant health has proven to be a yield booster in many areas. And with so much riding on every bushel of yield, retailers can make a solid case for adding an in-season application of fungicide as a risk management tool.

“High commodity prices and profit per acre potential” are driving fungicide applications on soybeans, says Craig Childs, senior vice president, agri-services at MFA, Inc, Columbia, MO. “The economic return for a fungicide application takes a lot less bushels per acre to generate than it did even two or three years ago. They’re protecting their investment.”

“Foliar fungicide had good growth for us in 2011, with the number of acres it was being applied to up significantly,” agrees Tim McArdle, general manager of the agronomy division at Brandt Consolidated, Springfield, IL. “Growers seemed to realize a good cost benefit from using it and weren’t reluctant to do so because of the high commodity prices for corn. All growers were looking to maximize their investments any way they could.”

“Fungicide use as a preventive on corn and soybeans was up,” says Hintzsche’s Eggleston. “This year, there seemed to be a big jump in the number of growers who wanted to take care of their soybean investment.”

Despite the growth and interest, CropLife 100 research indicates that there is plenty of room for growth. Only 5.5% of surveyed retailers apply preventive fungicides to more than half their grower customers, with another one-fourth of retailers saying that 26% to 50% of their grower-customers order a preventive application.

NCFE is taking that potential to the next level. The retailer has two planes on order and is constructing a hangar so it can service more acres, and better control the acres they service.

“We’ve hired a manager to run the aerial applications and we’ll also be adding some staff,” says Mielke. The western side of North Central’s territory is moving from small grains to corn and soybeans, providing ample opportunity to grow. “Once the planes arrive here, we’ll probably start taking pre-pay. We haven’t worked our all the details yet but we will definitely keep them busy.”

Seed Solid, Growers Await Traits

Seed sales continued to grow among CropLife 100 dealers, but in for the first time in several years it lost a bit of market share. But retailers say it is still very important to their businesses.

“It’s not an extremely lucrative market for us,” says MFA’s Childs, “but it’s a tool we can use and take to growers to help tie all their business together.”
In talking about seed business choices, many companies are scaling back their product offerings. Brent Low with Ag Partners LLC, Albert City, IA, says the firm has taken a “more disciplined” approach to this segment by focusing on two brands. He believes the strategy has been beneficial to the sales team and customers, as “we can truly be experts in the products we sell while experiencing sustainable growth.”

South Dakota’s row crop acreage growth, spurred by growers moving away from wheat, has been great for NCFE’s Mielke. In fact, this year, producers didn’t even complain about the price tag for their seed, as NCFE offers more premium brands (with a higher price) compared to some of its competitors.

CropLife 100 representatives we talked with see more stacked traits as a key factor for future success. This year, MFA’s Childs has seen an increase in producers wanting to use the LibertyLink system in place of Roundup Ready products to help with weed resistance. And he says his growers are eagerly following news of stacked traits in soybeans – including promised varieties with dicamba and 2,4-D resistance.

In just the next few years in corn, seed companies are planning to release hybrids that offer better nitrogen utilization, improved feed and ethanol conversion traits, drought tolerance, and novel insect control.

Steven Briggs with South Dakota Wheat Growers, Aberdeen, SD, agrees that growers want the latest technology, but it can be hard for them to evaluate hybrids with so many products coming out. The company monitors and showcases 24 test plots, plus relies on seed company partners for their performance trial results.

“We used to have two to three years to look at hybrids and kick the tires, now they come and go so quickly we don’t have the luxury to evaluate hybrids before pulling the trigger,” says Briggs. “Growers have trust in us and rely on our team to deliver.”

A Royal Seed Treatment

Although the seed category did see its market share dip slightly in 2011, ag retailers agree that the sub-category of seed treatment is booming. In fact, during the 2010 season, 77% of CropLife 100 retailers saw growth in their seed treatment business from 2009 of anywhere from 1% to more than 5% – the highest percentage figure for the nine sub-categories of crop inputs and services tracked the survey.

Better still, this percentage dipped only a fraction in the 2011 CropLife 100 survey, with 76% of respondents seeing 1% to more than 5% growth in their seed treatment business for the year.

“Seed treatment is a steadily growing segment of our business,” says Briggs. “Given the wet, cool springs that we’ve had, seed treatment has really paid off economically. There are some growers now that will never plant another acre without a seed treatment.”

MFA’s Childs agrees with Briggs’ assessment of seed treatment’s place within the industry. “We do a lot of it, and we continue to expand, along with our bulk seed at retail locations every year,” he says. “We’re getting to a point where a large percentage of our locations have seed treaters on site.”

Better still for ag retailers slightly put off by the traditional tight margins on seed sales, seed treatment margins have remained good. “That’s our biggest margin product,” says NCFE’s Mielke. “The treaters are certainly expensive, but with the high margin and the product we’ve selling, it’s definitely a quick return on investment. Our goal is, as we sell more seed, we’ll sell more treatment.”

Furthermore, says Harlan Asmus, president of Asmus Farm Supply, Rake, IA, the number of seed treatment offerings should keep growing as well. “The acceptance by growers for seed treatment has really taken off in our area, particularly in the past five years,” says Asmus. “And now, rather than just applying one product to the seed, growers are requesting multiple product be applied. This will not only help protect their investment, but provides an opportunity for ag retailers to do even more with their product offerings.”

A Mini Problem

Earlier this year, one of the hottest topics being discussed within the ag retailer community was the impending changes to the rules regarding ibcs or mini-bulks. These containers are used by growers to transport crop protection products from the outlet to their fields and back.

However, a few years ago, the federal government began drafting a new set of regulations on what kinds of mini-bulks would be considered in compliance and how retailers would need to track the histories of these items electronically so they could be disposed of or recycled in a timely manner. These new rules were to go into effect in mid-August.

So now that we are past the deadline for the new mini-bulk rules, how have CropLife 100 retailers fared in being ready for the changes? Based upon the data, the answer is pretty well. According to the 2011 survey, 33% of respondents said they were “totally prepared” for the mini-bulk rule changes.

“We’ve fared fairly well,” says Tim McArdle, general manager of the agronomy division for Brandt Consolidated, Springfield, IL, talking the company’s mini-bulk situation. “We’ve taken advantage of an accounting system we have from AgVance that has a module for tracking mini-bulks. For us, the whole thing has been a non-issue.”

Harlan Asmus, president of Asmus Farm Supply, Rake, IA, says his company’s experience has been similar to Brandt’s. “We were totally prepared for the changes,” says Asmus. “We’ve been using a bar coding system on our mini-bulks for the past eight years, so we just had to alter that slightly for tracking, noting inspection and repair dates on all our mini-bulks.”

Still, the majority of CropLife 100 retailers, 58%, indicated that their operations were only “somewhat prepared” for the new mini-bulks regulations. Another 8% said they “were not prepared” for the changeover. “We’ve probably haven’t gotten everything switched over and up-to-date just yet because we’re not quite to the deadline yet,” says Craig Childs, senior vice president, agri-services for MFA, Columbia, MO. “And yes, there is going to be a cost to us to switch shuttles over and get things up-to-date. Generally in the business world, this tends to get passed onto the end-user somehow, so this will affect the customers.”

Furthermore, this customer impact side of the mini-bulk equation may continue to cause ag retailers and their growers problems in the near future. “It affects customers more than probably they’re giving it credit for,” says Lane Mielke, sales and marketing manager for North Central Farmers Elevator, Ipswich, SD. “We’ve made the changes and spent the money to update the mini-bulks, but I don’t think it’s hit home to the farmer a whole lot – until they pull in with their trailer and we tell them ‘No, we can’t fill that anymore.’ That’s when it’s going to affect their business more than ours. We’ll have a tank for them, but this is definitely going to affect the convenience a little bit.”

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