Market Overview: A Study In Contrasts

Based on pure numbers, the agricultural marketplace is enjoying its best year ever. According to Crop­Life’s® annual CropLife 100 ag retailers survey, revenue for this group has never been higher than it was during 2010. For the year, ag retailers recorded an all-time high of $20.6 billion in sales for the four major crop inputs/services categories — fertilizer, crop protection, seed and custom application — up 9% from the 2009 total. Also, all four experienced sales growth in 2010 — something that rarely ever happens.

For the most part, CropLife 100 retailers expect these good times to continue to roll. When asked to rank their outlook for the coming year on a scale of 1 to 10, the majority, 40%, said they thought 2011 would rank an 8. Nine finished second at 19%, with a 10 being registered by 9% of respondents. So, in all, 68% of CropLife 100 retailers think 2011 will be as good or better than 2010 in terms of market growth. Only 13% ranked the prospects in 2011 as a 4 or lower.

However, the high optimism ranking masks some serious concerns retailers have about future prosperity when we talked to many managers one on one. Observers would probably say that this is a by-product of the many up/down market cycles that have occurred to the industry since the end of the 1970s, and in any given year optimism would be tempered by the prospect of unforeseen challenges. But based upon comments, this cautious feeling goes deeper than historic trends.

This fall and winter’s run-up to the 2011 season has become yet another volatile time for retailers trying to effectively manage fertilizer. Just two years after ag retailers felt the sting of hyper-volatility in the market, a new and unpleasant chapter is being written in a storybook with no real end in sight. 

Seed: Growing, Competitive

As a category, seed sales continue to show year-over-year improvement as evidenced in CropLife 100 retailer research. 2010 sales reached a new revenue benchmark of 15% of total revenues, up from 13% in 2009.

For the most part, retailers are confident seed will continue to play a bigger role in their sales going forward. “The complexity and cost of seed is giving us a chance to show off expertise that we have developed,” says Rod Silver, president of Mid-West Fertilizer, Paola, KS.

“Seed should be our No. 2 revenue generator behind fertilizer, but it’s been tougher to grow that business than I ever imagined,” says Gregg Johnson, agronomy manager at Reynolds United Coop, Reynolds, ND. “In our area, there are still a lot of farmer-dealers competing against us, and grower-neighbors have felt an obligation to buy seed from them. There are plenty of challenges, but our goal is to have seed overtake crop protection in the future.”

Meanwhile, seed companies already in an all-out market battle for market share will be turning it up a notch this winter and spring.

Generational Challenges: Changing Approaches

The generational change occurring in the general population is also occurring on two fronts for retailers: the next generation of growers is slowly taking over the farming operations from their parents, and retirements within retail operations are forcing managers to cast the widest net possible for qualified help. Recruiting smart young people from urban and suburban areas in addition to traditional rural resources requires a different mindset and approach to hiring and management.

Precision: Stable But Stagnant

In particular, precision ag suffered from this study in contrasts. According to the data, retailers had precision ag sales of more than $140 million in 2010, down 3% from 2009. Despite predictions that there would be a need for more site-specific application of fertilizer and crop protection products, adoption has remained fairly flat for several years.

When asked why precision ag growth has tended to lag, retailers indicated a combination of cost and uneven results were to blame. “The time to execute and questionable results have held back our precision ag sales,” says Kyle Baltz, owner/manager at Baltz Feed Co., Pocahontas, AR.

“We do variable-rate fertilizer and lime and offer grid sampling services, but we have not seen a lot of growth,” says Kevin Meinord, sales and marketing manager at MRM Ag Service, East Prairie, MO. ” If nitrogen, phosphate and potash remain high, that could be a factor in what dictates more growth in precision. But for the last two or three years, it has been relatively flat.”

Consolidation: Slowed But Inevitable

In 2010, as profits soared, consolidation among retailers slowed down significantly. In an average year, approximately four to seven companies will exit the CropLife 100 listing via consolidation. In 2010, however, only one — Premier Ag — left via this route, acquired by Wilbur-Ellis Co. Another, Miles Farm Supply, was acquired by Agrium Retail just prior to the end of the year. (In CropLife 100 rankings, Miles is still listed independently because the deal was not complete as of our November 1 listing deadline.)

In 2011, however, most retailers polled for the State of the Industry report believed consolidation would become more prevalent once again. “Consolidation has been minimal in our market, but if it becomes difficult to make a reasonable profit, consolidation could increase,” says Frank Schumacher, agronomy division manager for Mountain View Co-op, Black Eagle, MT. “The independent dealer that is first generation is the most likely candidate to sell.”

Wade Blowers, COO for Ham­ilton Farm Bureau, Hamilton, MI, agrees. “I would expect [consolidation] to pick back up,” says Blowers. “The landscape is still overserved with retail facilities, and consolidation will increase as the overcapacity struggles to be profitable. Longer term, costs and overcapacity need to come out of the market in order to grow profitability by those who are still participating.”

Regulation: Tough And Tougher

On the regulatory front, retailers say that the hoops they must jump through are getting higher and more challenging. “In general, we are finding that compliance with government regulations is getting more time consuming and expensive,” says Mountain View’s Schumacher. These include ones dealing with fertilizer storage. “The new regulations on portable storage are going to force us to operate a little differently,” he says.

According to Hamilton Farm Bu­reau’s Blowers, EPA’s interpretation of the 1987 exemption within the SARA Tier II reporting on requirements for fertilizer held for sale by a retailer is concerning. “An interpretation change which drives an outcome of retailers being cited is troubling,” he says.

Others are worried about water. “The Clean Water Act is generating greater pressures toward regulating nitrogen and phosphorous use,” says Doug Busdeker, area general manager, farm centers for The Andersons, Inc., Maumee, OH. “The National Pollutant Discharge Elimination System permits for pesticide applications near water would be a burdensome process for spray applicators.”

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