U.S. Ag: Undercut At Every Turn
Fluctuations in overseas markets are causing domestically-based ag retailers to re-evaluate several aspects of business as the global crop protection market expands its reach into developing ag markets worldwide.
“I think the biggest issue that we are seeing is the global market shift away from North America to other areas of the world,” says Dave DuFault, VP & GM retail business, Simplot Agribusiness. “It used to be that North America was the best market in the world for ag chemicals, but that’s not necessarily the case anymore.”
Suppliers are now able to sell products at higher net backs overseas, says Simplot Grower Solution’s (SGS) Charlie Grasham, director of crop protection. “Latin American net-backs are often better right now, and retailers in North America are now fighting globally to get enough product on hand.”
Amy Asmus, owner, Asmus Farm Supply, Inc., is also dealing with the market shift at her and husband Harlan’s Rake, IA-based outlet.
“Where a retailer can really get into trouble (with a situation like this) is when you have a spring like we did this year,” explains Asmus. “The wet weather around planting time really screwed some things up because growers couldn’t use many of the pre-emergence products they had planned to, and retailers had already ordered those products, so all of a sudden you need to quickly change chemistries and order new inventory, causing a bottleneck in supply.”
According to Simplot’s DuFault, the changing dynamics of the global market are also driving deviations in inventory procedures. “Five or six years ago it was all about ‘just in time’ inventory,” he says. “Now, it’s ‘just in the nick of time, and just enough’ when it comes to inventory. Additionally, everyone is watching their cash-on-hand more closely than five years ago, and that comes with the depressed commodity prices many are forecasting.”
As an example of the inventory issue, DuFault and Grasham cite the difficulties in 2013 in securing large supplies of dicamba from China-based manufacturers.
“We saw some challenges with securing enough dicamba last year, as much of the product was being allocated to the South American markets,” says Grasham. “Retailers now must cultivate a strong relationship with the distribution network in order to make sure they have ample products to support grower-customers.”
China is also in the process of reportedly “cleaning up” its ag chemical industry, imposing new environmental regulations that will drive the cost of production higher, leading to increased prices for U.S. manufacturers sourcing raw material from China.
“Chinese manufacturing is being scrutinized more closely by the Chinese government, and that is leading to increased costs,” says Grasham. “It used to be you said ‘Well, we’ll get it from China because it’s so cheap,’ but that’s not necessarily the case anymore.”
Meanwhile, Asmus is keeping a keen eye on South America, specifically Brazil, but it’s got nothing to do with the 2014 World Cup being hosted by the South American power.
“Brazil is huge and their government has committed large amounts of capital to beef up infrastructure to get products to market more effectively,” she says. “The Brazilian government is working very hard to support agriculture in their country, and it’s going to be very hard to compete with that on the world stage.”
Asmus is also seeing a need for more painstakingly precise planning with growers, although that is not always a negative for the No. 66-ranked CropLife 100 retailer. “Now we are forecasting in July for the next year, before we’ve even sold this year’s entire inventory,” she says. “One area where that can actually be a plus is in dealing with weed resistance issues, as it helps us lock in a multi-year management plan where we can know three to five years ahead of time what products that grower is going to need.”
Asmus would also like to see a friendlier legislative climate in Washington, DC, believing such a change could benefit ag retailers competing for supplies on the world stage.
“Domestically there is not a whole lot of support for agriculture, and internationally the U.S. is not viewed as a country that overwhelmingly supports ag initiatives,” Asmus says. “We need lawmakers to support the industry, and to figure out what we need to do as an industry to make U.S. agriculture number one again.”