A Precarious Fall

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For the past several years, fall has been a profitable time for ag retailers. Healthy harvests and decent crop prices have helped grower-customers be flush with cash to spend. On average, the total crop input market has enjoyed annual 3% to 4% gains.

This doesn’t seem to be the case in 2006, however. After starting out with the promise of continued sales growth, ag retailers have largely not seen these projections pan out. Based upon current sales forecasts and advance fall input orders, 2006 looks like it will be the first year since 1991 that the aggregate crop input market in the U.S. will suffer a volume decline. Particularly hard hit will be crop nutrients, predicted to be down 8% to 10% by year-end, and crop protection products, off an estimated 5% as more grower-customer business shifts to trait-laden bioengineered seed.

As for the reasons for this decline, you can take your pick. Some experts say volatile energy prices (including natural gas and diesel fuel) convinced distributors to delay fertilizer purchases. In other cases, retailers chose to cut back their fertilizer inventories to make certain bins were empty at the end of the spring season.

Others point the finger more directly at grower-customers for the downturn. “Because of low corn and wheat prices and high energy input costs, U.S. farmers have been drawing down soil nutrient levels without replacing those nutrients,” says David Delaney, president of PCS Sales.

Either way, everyone who observes the market agrees that the 2006 fall season will be slower compared with the past few years.

Despite this news, market analysts predict that the 2006 crop input volume decline won’t have much staying power. As evidence, they point to several developments that should lead to a brighter outlook in 2007. First off, fertilizer prices appear to be stabilizing. Natural gas prices — which had been rapidly climbing since 2003 — are projected to fall approximately 10% going into the winter. This could convince nitrogen-based fertilizer suppliers to bring additional production on-stream. Passage of the Gulf of Mexico Energy Security Act, allowing for expanded natural gas drilling in the outer continental shelf, should also help. In addition, three urea plants in Egypt, Saudi Arabia, and the United Arab Emirates have come online earlier than expected. Combined, these plants are capable of exporting 2 million metric tons of product to the U.S., keeping prices soft.

Second — and perhaps more importantly — crop demands are on the upswing. According to USDA, corn demand will exceed production this year by nearly 1 billion bushels, severely curtailing the nation’s carryover supply. Much of this need is coming from the ethanol industry as efforts to find alternatives to fossil fuels ramp up. Long-range forecasts now project corn-planted area in the U.S. will top 85 million acres by 2009, an increase of 7% from today’s total. According to Dan Froehlich, U.S. agronomy manager for The Mosaic Co., this will undoubtedly lead to increased fertilizer applications in the coming years.

The bottom line from all these bits of data is simple — while retailers may be in a precarious position during fall 2006, the downturn shouldn’t last. The future looks to be brighter, for plenty of seasons to come.

Sfiligoj is the Editor for both CropLife and CropLife IRON magazines. He travels regularly to cover industry events and has been dedicated to the ag retail industry since he joined the staff in 2000.

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