Boy, what a difference a few years has made for the world of agriculture. In 2009, when we first began this comprehensive look at the marketplace, agriculture was in a state of shock. As the global economic environment went south, commodity prices followed, as did crop input prices. By the end of the year, with virtually no fertilizer sold during the fall, ag retailers took millions of dollars in inventory write-downs, which severely depressed the industry’s 2009 numbers.
By contrast, 2011 is shaping up to tell a completely different story. According to information gathered in the CropLife 100 ag retailers survey, overall revenue for this group grew 17% to more than $24 billion. Better still, the four major sources of this income — fertilizer, crop protection products, seed and custom application work — also saw increases.
“If you back up to one year ago, we had an incredible fall because of the outstanding weather, and for the most part, it sure felt like in fertilizer, we were in a position to cannibalize a fair amount of spring application,” says Jim Howe, vice president for Star of the West Milling, Frankenmuth, MI. “We did lose a bit of spring, but as it turned out, we were on par with expectations.”
The Profit Question
Of course, while volume numbers were a big improvement from the past few years, profits were still sometimes hard to come by. “That’s been a tougher part of this business lately,” says Harlan Asmus, president of Asmus Farm Supply. “For many dealers I know, their sales were up in the 20% range, but their overall profits ended up dropping approximately 1%.”
According to Asmus and other retailers, part of the reason for this is the intense competition that is beginning to cater to the grower community. In fact, some retailers said that their facilities were the only brick-and-mortar structures servicing their areas in direct competition to a host of small shops that just sell products to “a couple of guys selling products from the back of a pick-up truck.”
And, according to Craig Childs, senior vice president of agri services at MFA, Columbia, MO, this situation is likely to be more pronounced in the coming years. “When there’s money in the farmers’ hands, it seems like there’s more people there wanting to get it from them,” says Childs.
Of course, with the overall happiness in the marketplace right now, there are some observers who have wondered aloud if the industry is setting itself up for another crash effort a la 2008. However, Star of the West Milling’s Howe doesn’t think that history will end up repeating itself in 2012.
“There’s a lot of concern about whether we would experience another 2008,” he says. “The key difference is that back then, we as an industry were all expecting prices to climb and had fully stocked our warehouses, and manufacturers were also overstocked. Now, fertilizer warehouses are experiencing shortages. In 2008, we all built up inventories in hopes of hitting a home run. And we got washed out instead.”