As in card playing, the outlook for this fall’s fertilizer application season appears to be something of a mixed deck. Overall, there are plenty of opportunities to receive a winning hand. There are, however, just enough wild cards that could show up to turn the industry’s hand into a losing one.
This is certainly a different market view from the spring 2021 season. Back then, ag retailers were generally positive in their fertilizer application outlook, expecting high demand as agriculture (and the world in general) recovered from the COVID-19 pandemic economic slowdowns.
“After a great 2020 growing season, strong yields, and more favorable grain prices generated farm income while depleting soil nutritional content, the ingredients are in place for another strong fertilizer season,” Baker Roger, Vice President, Crop Nutrient Supply, Trading and Risk Management at CHS Agronomy, Inver Grove Heights, MN, told CropLife® magazine during our spring 2021 report. “We expect growers will plan to duplicate their success, suggesting a significant crop will be planted in soil that will need to be nourished to provide the desired yields.”
And truth be told, there are plenty of ag retailers that believe these winning hands from spring will continue to show up for agriculture well into the fall season. “The outlook [for fall 2021] is positive,” says Kevin Semmens, Director of Finance, Planning & Analysis for Nutrien Ag Solutions, Loveland, CO. “Even though growers will see big price increases from what they paid last fall, the outlook is still positive due to high crop commodity prices. The price of fertilizer is still affordable at these levels.”
Lance Ruppert, Executive Director, Agromony Marketing & Technology for GROWMARK, Bloomington, IL, agrees with this assessment. “Generally, the outlook is positive,” says Ruppert. “Trends support the fact that growers are trying to maximize yields, despite higher input costs. Farmgate profitability models are significantly more positive year-over-year.”
Despite these views, there are plenty of ag retailers that can’t see any winning hands showing up when it comes to their grower-customers for the fall 2021 fertilizer application season.
“[We are] somewhat negative at this time as growers are indicating pulling back on application rates of phosphorus and potash due to the cost differences compared to last fall,” says Mandy Hunecke, Communications Director for Crystal Valley Cooperative, Mankato, MN. “Also, there is a segment of the growers thinking [these cost differences] will drop by spring 2022 and are waiting to do a spring application instead.”
Tom Wimmer, Chief Operations Officer at Marion Ag Service, St. Paul, OR, agrees. “Overall, we are negative on fall fertilizer,” says Wimmer. “High prices are driving down demand on fertilizer components. Short supplies during peak demand times mean lost sales. Fall fertilization on perennial grass seed crops will be impacted.”
Given all these positive vs. negative outlooks for fall 2021, perhaps Mike Conover, Director of Agronomy Procurement at Ag Partners LLC, Calumet, IA, sums up the industry’s overall feelings the best. “Candidly it’s too early to tell,” says Conover. “Within the scope of our marketplace, we will have areas that experience above trendline yields and other areas with below trendline yields. Those areas with below trendline yields are experiencing this for the second year in a row. Rainfall will make all the difference this year. Favorable commodity prices will help to ease the pain of high fertilizer prices but bushels per acre will still dictate rates.”
Prices vs. Supply
As you might be able to tell from some of these comments, the keys to success this fall fertilizer application season largely hinges on two factors — crop/fertilizer prices and supply issues. Obviously, which one of these ends up being the last card played in 2021 will make the difference between a profitable and unprofitable year, for numerous ag retailers and their grower-customers.
Right now, says John Oster, Sales Specialist for The Morral Companies, Morral, OH, prices are a winning card for the industry going into fall. “If our growers were staring down the twin barrels of a shotgun loaded with $3 corn and $7 soybeans, they’d think twice before doing any heavy fall applications of these very high-priced fertilizers,” says Oster. “However, they’re going to make a lot of money this year, and there is no better spender in all the world than the American Farmer when he has reason to do so. And he does this fall. But he needs to keep his options open, as much as possible, while still being sure he has his base acreage needs covered.”
Furthermore, he adds, prices for both crops and fertilizer will continue to play their part in how the industry moves forward into the spring 2022 season as well. “The ratio of fertilizer prices to 2022 futures prices for corn and soybeans will be an important factor to consider,” says Oster. “For example, the August 3, 2021, market close had December 2022 corn at $5.05 per bushel and November 2022 soybeans at $12.49 per bushel. Our good/better/best growers can lock-in a given percentage of their 2022 crops at those numbers and show a nice profit, even on today’s high costs of crop inputs. Those guys will protect that locked-in position by fertilizing next year’s crops, no question. As long as we have this set of numbers working on the grower’s behalf, they are much less likely to cut back.”
Phil Altstaetter, head of Crop Nutrients at Sunrise Cooperative, Fremont, OH, also believes high crop prices will trump high fertilizer prices going into the fall fertilizer application season. “Here at Sunrise, we are very optimistic about the fall fertility season,” Altstaetter says. “Growers have had some very solid opportunities to buy their fertility needs for this fall in preparation for the 2022 crop over the past several months. Many growers stepped up and participated in this opportunity. For the most part growers had good money from selling the last of their 2020 crop and the large supply of government handouts. Growers also had the opportunity to contract well over $5 per bushel corn for fall 2022 delivery making this investment in fertilizer even easier to do. Sunrise was able to help growers invest those dollars in their 2022 crop and take advantage of early pricing opportunities before the prices went up too much. With this early push, Sunrise has set itself and our growers up to have a great fall. We are very optimistic about where we sit for this coming fall.”
However, he adds, there may be some limits to just how much fertilizer application growth can be achieved in 2021. “Though Sunrise is well positioned for this fall season and we are very optimistic about the fall season, good additional growth for this fall season may be very difficult to come by,” says Altstaetter. “We all know fertilizer prices have increased dramatically from where we were early this summer. We are now dealing with prices that represent five- and 10-year highs in some cases. Keeping growers excited about buying additional tons and getting growers who have not participated early interested in fall fertilizer may prove to be a challenge. In order to experience nice growth this fall, we will need growers who did not participate early willing to invest at these very high levels as they go to the field this fall.”
Then of course, there is the supply issue. For much of 2021, say market watchers, crop input supplies have been severely short in numerous areas, including crop protection products and crop nutrients. This situation was created by supply chain disruptions/manufacturing closures that took place during many of the market shutdowns of 2020. In many cases, these supply headaches have lingered throughout the first half of 2021 as well.
According to George Secor, President/CEO for Sunrise Cooperative, this wildcard could upend an otherwise winning fertilizer application hand for many ag retailers come fall. “The supply will probably limit us more than price,” says Secor. “Crop in general looks good and removal is needed, but the supply chain will limit fall usage.”
GROWMARK’s Ruppert concurs. “Supply will likely be the biggest challenge,” he says. “Strong demand has been sustained for phosphates and potash for the past 18 months, preventing much restocking to occur. Furthermore, countervailing duties are disrupting the traditional flows of imported phosphate and UAN supplies that the market normally requires. Deferred maintenance through the first wave of COVID-19 has also stacked up ahead of next season.”
The N-P-K Outlook
So, what might these factors mean for the application outlooks for the three macronutrient segments? According to Morral’s Oster, if the right cards are played in the market, a winning hand is in the offing. “The world supply/demand situation on corn, now and projected for next year, indicates a strong fall application season for ammonia, which will drive the overall nitrogen market, as growers will opt early-on to maximize corn acres next spring,” he says. “And don’t forget wheat; it’s looking pretty good right now.
“Conversely, growers will be faced with much higher phosphorus and potassium costs at the farmgate and will quite likely pare-back early applications for next year’s growing season,” Oster continues. “In the case of phosphates, growers may be better served to consider increasing existing liquid starter program plans or switching from fall-broadcast phosphates to spring-injected N-P-K, whether that be 10-34-0 or a pop-up liquid. Remember that the longer they can wait, the longer they have the option of switching acreage from one crop to another, depending upon crop futures pricing as they approach next spring’s final planting decisions.”
Nutrien’s Semmens also foresees strong demand for macronutrients during fall 2021, with perhaps potash being the most in danger of some form of market disruption. “Weather dependent, I would say that nitrogen will perform best,” he says. “Supply looks good and pricing to growers is not out-of-line. Potash will be challenged by supply constraints. Some plant outages and international demand has many questioning if there will be enough potash domestically to supply what we put out last fall. The big question is ‘will potash be positioned in the right geographical area if we have a big run like we did last fall?’”
Of course, he adds, prices at all levels of the agricultural supply chain will need to be watched, just in case. “It feels like ag retailers will be more risk adverse on positioning large amounts of fertilizer at these high prices,” Semmens says. “Prices on commodities are double for this fall, and if that price trend continues, it will have ag retailers debating on how much fertilizer to position for their growers. I expect more spot buying of fertilizer than we have seen in the past years. Retailers will not want to be long at the end of spring and will be closely monitoring their positions.”
Ultimately, says Morral’s Oster, the whole question of a profitable 2022 season could come down to if a single wildcard turns up or not. “Weather is always the joker in the deck,” he says. “A very wet, very late spring can certainly wreak havoc.”