As the marketplace gears up for the 2010 spring season, it seems as if the industry is dividing up into two distinct camps when it comes to predicting how the year will play out. Saying this is “black or white” sounds too cliché. So, in honor of how political pundits describe the national divide these days, I will label these camps the Red and the Blue.
In the Red Camp, everyone is angry. These individuals have watched their healthy profit margins from 2007 evaporate and, in some cases, turn into a sea of red ink on their 2008 and 2009 balance sheets. Red campers are angry that the good times of the mid-2000s didn’t last (and that they were unprepared for the crash in fertilizer inventories vs. prices).
But by the same token, individuals in the Red Camp are convinced 2010 will be a harbinger of better days ahead. Grower-customers who favor corn have spent the better part of the past two seasons “mining” their soils for crop nutrients without putting down needed items such as phosphate (P) and potassium (K). “If they want to maintain the record yields from 2009, they will have to start buying P and K again,” say Red campers. Along with improved fertilizer sales, Red campers believe other crop inputs will follow a similar growth curve and the industry will return to its profitable ways, a la 2007.
Meanwhile, in the Blue Camp, individuals are deeply depressed, or blue, in their outlook. These retailers are looking at the market in a completely different light, with most convinced the down times of 2008 and 2009 will usher in an age of depressed profit margins, lower input usage, and more custom application work being done by grower-customers themselves. “Now that growers have maintained high yields without doing as much work, they will be satisfied to sit back and wait until things get desperate before making a purchase,” say Blue campers.
What do I think? Truthfully, I can see both sides being right in some ways. In that sense, color me purple.
I believe Red campers are right when they think things have to improve in 2010. But the bar is so low compared with the performances of 2008 and 2009, this shouldn’t be hard to accomplish. On the flip side, Blue campers are probably right that growers will be much more reluctant to spend money than ever before.
Viewing things from a purple perspective, 2010 will probably be a “one step forward, one step back” kind of year. Retailers will see increased fertilizer profits, with formal contracts locking in deals far in advance of delivery. However, with record harvest numbers for the 2009 crop, commodity prices have already dipped, meaning grower-customers will be watching every penny they need to spend throughout the year. Credit will be available for some companies, but others will struggle to find banks willing to back them.
All this means is that the industry will have plenty of Red and Blue stories to tell in 2010. But the overall market performance will probably be colored a middle-of-road purple in the end.