Compared with virtually any other year, 2020 was one for the record books. Worldwide, numerous businesses and industries had to navigate unexpected challenges — from extreme weather events across the globe to an overall economic slowdown. Then, of course, there was the one event that dominated much of the news — the ongoing COVID-19 pandemic.
And at first glance, all of this worldwide “unevenness” did have a negative impact upon several of the crop input categories, particularly fertilizer. In fact, according to data collected in the annual CropLife 100 survey of the nation’s top ag retailers, the fertilizer category experienced a steep decline during calendar year 2020. Overall, revenues fell 6.6%, according to the data, from $13.7 billion in sales during 2019 to $12.8 billion. This dropped the market share for crop nutrients among all crop inputs/services to 40%, down 3% from 2019.
However, this data didn’t necessarily tell the entire story for fertilizer during the latter portion of 2020. In practice, many CropLife 100 ag retailers close their financial books at the end of August or September, meaning the 2020 survey data on how the fertilizer category performed during the late fall months each season isn’t always captured in this overall information set.
In fact, there were hints that the fall 2020 fertilizer season was turning out better than expected when CropLife® magazine put together its fall fertility outlook in the September 2020 edition. “We are on track to have a good crop in central Illinois, and our good farmers know the value of replacing fertilizer removal, which should result in good phosphate and potash sales,” said Tim McArdle, a BRANDT representative (now retired), in the magazine’s cover story on this topic.
Several other ag retailers CropLife magazine spoke with for this story agreed with this earlier assessment. “We have seen good fall volumes,” says Bruce Vernon, CEO at The Equity, Effingham, IL. “I believe the primary reasons they have been good is because of the 2020 crop yields, which depleted soil nutrients and needed to be replaced.”
Better still, the ongoing coronavirus pandemic had little to no impact upon fertilizer demand during fall 2020, says Vernon. “Amazingly, this industry pretty much took COVID-19 in stride,” he says. “[There was] very little in the way of supply and demand interruptions. Retailers for the most part adapted to new work conditions such as curbside pick-up or isolated farm delivery. Let’s face it — there is no better social distancing than being in an applicator rig in the middle of a corn field!”
Dwayne Sharun, Crop Nutrients, Supply and Merchandising Director for GROWMARK Inc., Bloomington, IL, agrees. “We believe the industry has adapted well and continues to evolve their business processes in terms of minimizing contact between retailer and grower due to COVID-19,” Sharun says. “We have seen retailers and growers being more proactive and planning further out to make sure they have their supplies covered for spring due to COVID-19. Contactless transactions are becoming somewhat routine for the industry.”
The Spring 2021 Outlook
For the most part, fertilizer industry watchers anticipate this strong fall demand to easily spill over into the upcoming spring 2021 growing season. “GROWMARK’s outlook for spring 2021 is positive after a long open fall where we saw strong volumes applied with fertilizer prices that represented good values to the grower,” says Sharun. “Corn, soybean, and wheat prices will positively support strong fertilizer usage for 2021 crops.”
Roger Baker, Vice President, Crop Nutrient Supply, Trading and Risk Management at CHS Agronomy, Inver Grove Heights, MN, shares this positive outlook. “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,” says Baker. “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.”
Of course, helping this expected demand for fertilizer ties back to one major driving force — money. “We are optimistic fertilizer for spring of 2021,” says George Secor, President/CEO for Sunrise Cooperative, Fremont, OH. “Grain prices have made a tremendous rebound and historically that is a very good indicator for a nice fertilizer season for Sunrise. All-in-all, growers seem to have some money and a very positive outlook for 2021, which should result in a nice spring.”
This view is borne out by government statistics. According to USDA data, net farm income topped $119.6 billion during the 2020 growing season, a 36% improvement over the 2019 total. Significantly, $46.5 billion of this amount came into grower pockets via federal aid to offset the ongoing trade war with China, coup with extreme weather events, and additional COVID-19 pandemic relief funds.
With this money in hand, many grower-customers are expected to invest in replenishing their soils for the 2021 growing season, says Kevin Semmens, Director of Finance, Planning, and Analysis for Nutrien Ag Solutions, Loveland, CO. “Growers have money and seem willing to outlay cash to lock in fertilizer,” says Semmens. “If you look at any profitability index, it will show that the price of fertilizer is extremely favorable at the moment with the rise in grain pricing.”
In addition to having extra cash to spend on crop nutrients in 2021, many market observers are also watching to see how the crop mix ultimately plays out. According to the latest USDA numbers, U.S. growers are planning to plant approximately 91 million acres of corn in 2021 (down slightly from 95 million acres in 2020) and 90 million acres of soybeans (up slightly from 89 million acres in 2020). “If we see a last minute increase in corn acres getting planted from the current projections of 91 million acres, that could affect fertilizer pricing even further upward,” says GROWMARK’s Sharun.
The Macronutrients Outlook
Naturally, the biggest beneficiary of more corn going into the ground during 2021 would be nitrogen-based fertilizers. “Nitrogen will perform the best,” predicts Nutrien’s Semmens. “We had a good fall run on nitrogen but nothing above our original forecast heading into spring. This would mean that there is a large amount of nitrogen left to go and at these prices, it will be affordable to apply good rates. I don’t foresee any issues on nitrogen supply at the moment that would keep us from having a great spring.”
- Related: Global Nitrogen Market for 2021
For phosphates and potash, however, the outlook for the 2021 growing season is a bit less clear, he says. “Potash and phosphorus have a bigger chance of being a disappointment,” warns Semmens. “The reason [for this] is that we had an amazing run this past fall and that cut into a piece of our spring demand. The overall system on phosphates and potash is very bare at the moment and will take some time to get recharged. So if we get an early spring, we could see supply issues pop up in a few areas.”
- Related: Phosphate and Potash Outlook 2021
In addition to potential supply issues, rising costs could also dampen phosphates and potash demand this year. “Potash demand continues to grow,” says GROWMARK’s Sharun. “Potash supply seems unusually tight coming out of fall season but should improve in spring as imports improve. Phosphates seem most at risk with uncertainty around the Phosphate Countervailing Duty Investigation that might impact spring usage as prices have risen over $100 per ton since the case began in June 2020. New supply lines are still being reworked globally to find phosphate supply that is currently not available by the traditional importers.”
And in certain parts of the country, stricter fertilizer application recommendations could also hamper phosphates and potash usage during the 2021 growing season. “Our biggest limit on growth will simply be the newest Tri-State fertility recommendations, which impact Indiana, Ohio, and Michigan,” says Sunrise’s Secor. “We are really using a teaspoon anymore when it comes to phosphates and potash recommendations. Our focus on being 4R-compliant has resulted in recommendations which just do not call for much phosphates and potash at all. With this stiff limit on application volumes, we will have to really work to increase our phosphates and potash volumes over last year’s totals.”
According to CHS Agronomy’s Baker, phosphate demand may also suffer because of higher fees. “Additional considerations this season include the potential influence of phosphate tariffs and their impact on market dynamics,” he says.
Still, when all is said and done, Baker believes all three macronutrients have the potential to record strong spring seasons. “Nitrogen, phosphorous, and potash all provide critical crop nutrition,” he says. “With the soil profile depleted, we see opportunity for all nutrients. As the highest volume fertilizer, we expect nitrogen to lead the pack, aided by favorable dynamics in cost of production.”
And before we end the discussion on macronutrients, Sunrise’s Secor adds that some consideration should be given to the role another crop nutrient, sulfur, might play during the 2021 growing season.
“We are continuing to see a large push in sulfur application,” he says. “Growers are finding economic response to increased sulfur application across multiple crops. Wheat, corn, and alfalfa are three that really come to mind quickly as needing higher rates of sulfur than we have been historically applying. I expect our sulfur growth to perhaps be the largest of the four macronutrients, quite frankly.”
Other Factors, Considerations
Looking at the bigger picture for the spring 2021 fertilizer season, there are a few other factors to consider. As always, weather will play a big role in how successful/profitable the year will be for ag retailers and their grower-customers. “As always, the biggest challenge will always be application window and whether or not Mother Nature lets us have time to put it out,” says Nutrien’s Semmens. “Another challenge we see to growth on the nitrogen shelf will be what gets planted. If soybeans continue to stay at these levels, then we may see enough decline in the corn acres. [This would] make it a good nitrogen application season rather than a great one.”
Another perpetual concern for fertilizer application success ties back to logistics. “As advancements in machinery and seed technology enable growers to plant in a compressed window, the greatest challenge for the season ahead may be strain on the overall fertilizer supply chain, including logistics,” adds CHS Agronomy’s Baker.
Of course, at least through the early part of 2021, the ongoing COVID-19 pandemic could further complicate fertilizer transport logistics for ag retailers, warns Sunrise’s Secor. “Sunrise really has to be careful that we do not have to much product in places that we cannot get to easily,” he says. “If a third-party terminal shuts down due to having to many sick folks, that could really mess with us. This is a huge concern around products like ammonia, where we are very dependent on third-party terminals. Transportation has also been a challenge at times for us as different trucking firms have had drivers forced to stay home due to quarantine rules.”
Still, many industry observers are hopeful that 2021 will see the COVID-19 pandemic brought under some measure of control as vaccinations become more widespread. This should allow agriculture to shift its focus back to several longer term goals and initiatives.
“So much can change in a year,” says Joel Lipsitch, Vice President of Product Management and Marketing at Sound Agriculture. “We are all hoping that 2021 is the end of COVID-19. The new [Joe Biden] administration will surely bring some changes, and some of those should be quite positive for agriculture. I believe that farmers are some of the original stewards of the land, so I will be looking for additional policy and public support for expanded practices such as conservation tillage and cover crops as well as clearer guidance on how farmers can participate more actively in carbon markets.”
Furthermore, say others, some of the additional money grower-customers received during 2020 (and are currently spending for the 2021 growing season) could also spur crop nutrient demand well into the 2022 growing season. “I have fielded many questions over the past few weeks about growers wanting to lock in fertilizer prices for 2022,” says Nutrien’s Semmens. “So they feel good not only about 2021, but 2022 as well.”
Sunrise’s Secor agrees that watching how grower-customers manage their funds from 2020 will be an important factor for ag retailers in 2021. “I guess one thing we need to keep an eye on is the American Farmer has had a lot of money thrown at them from our government over the past few years,” he says. “If this goes away, I hope everyone is able to adjust quickly enough.”
Still, concludes Secor, he is hopeful some lessons learned during the past year will stick with the ag retail industry going forward. “If we learned nothing else over the past 12 months, we have to realize there is always risk,” he says. “As smart as we think we are, we have no clue what is going to happen next. Last year, 2020, should have reminded us again how important it is to know our fertilizer position and realize how much risk we are taking at all times.”