The 2023 Spring Fertilizer Outlook: Why Ag Retailers Should Pay Close Attention to Market Dynamics

What a difference a year makes — potentially. That’s the message ag retailers are telling CropLife® magazine as the industry prepares for the upcoming spring season.

During 2022, there was much worry among ag retailers and their grower-customers when it came to crop nutrients. As a result of ongoing supply chain issues and logistics problems, fertilizer prices quickly double or tripled from their 2021 per ton averages.

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“[We are] slightly negative,” Joe Kilgus, Director of Sales & Marketing Crop Nutrients, GROWMARK Inc., Bloomington, IL, said of the company’s fall forecast back in September 2022. “High prices proved demand destruction was real last year and could continue at these elevated price levels. Risk is higher for everyone in the channel and farmgate economics have soured with the recent downturn in commodity prices.”

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But, a funny thing happened to fertilizer between as 2022 drew to a close — the marketplace performed quite well. According to data compiled in the 2022 CropLife 100 Survey of the nation’s top ag retailers, overall fertilizer sales topped $23.4 billion, an increase of 53% from the 2021 market total. Furthermore, even though many ag retailers were paying more to obtain fertilizer for their grower-customers, their profitability levels remained high. Indeed, 77% of CropLife 100 ag retailers reported their overall profits levels were higher than during 2021, an improvement of 7% from the previous year’s survey percentage.

So, now that the 2022 growing season has completed wrapped up, what might the 2023 spring season look like for crop nutrients? To gauge this question, CropLife magazine reached out to several high profile members of the CropLife 100 to find out.

The Outlook for 2023

In general, ag retailers believe the spring 2023 fertilizer season will remain a good one for the industry. “Our outlook is positive,” Rod Wells, Chief Supply Chain Officer at GROWMARK, says. “Prices have come off recent highs, global supply is adequate, and commodity prices remain strong. [This should] support good farm economics.”

John Allen, Vice President of BRANDT Agronomic Services, Springfield, IL, agrees. “Our outlook for the 2023 crop year is generally positive,” Allen says. “Crop values remain high and fertilizer costs are softening. We — and our farmers — had a great fall season, which has set us up for a good 2023 season.”

Still, not everyone is convinced 2023 will be as good as 2022 turned out to be. In fact, according to George Secor, President/CEO at Sunrise Cooperative, Fremont, OH, his company is expecting more of a flat year this spring.

“Sunrise is fairly neutral on fertilizer application for 2023,” Secor says. “Growers applied a nice amount this fall, prices are now sliding, and we are seeing folks step up for spring applications as well.  So, when it is all said and done between the two, I think our application will be very average. It will not be anything overly special, but I do not see it being a wreck by any means either.”

In terms of the biggest challenges facing the marketplace right now, Secor says that industry watchers should keep a close eye on the ups-and-downs of overall commodity prices — particularly now that many of them have stabilized somewhat.

“Though we are seeing some prepay happening around tax planning, growers have no incentive to go crazy and buy lots of tons when we are in a declining market,” he says. “I do not care if you consider potash or nitrogen — both have had a hard time holding themselves together price wise of the past eight to 10 weeks. So, it does not cause a lot of urgency for growers to make decisions, today. To tell this picture a little more clearly, look at other commodities. Diesel fuel has fell back considerably and lumber at your local lumber yard is now back under $10 per sheet. We have to consider the fact all these products are commodities. Traditionally four to five commodities (fertilizer) do not run away to the upside while other commodities fall back and flounder. I share all this to say pushing growers to make a decision and allow us to get tons in place and to sell more tons than we did last year is going to be really hard when they are watching many other items they buy fall back or stay flat.”

GROWMARK’s Wells advises ag retailers pay attention to other market forces this spring, including those upon the international stage. “High fertilizer prices have encouraged many [growers] to experiment with reduced rates or the use of supplemental specialty products,” he says. “Geopolitical events will continue to impact markets and recharging the river system will require additional rain and/or snow in the Upper Midwest.”

BRANDT’s Allen believes spring won’t be a problem for his company and its grower-customers. Fall, however, might bear watching more closely.

“Both 2021 and 2022 were both big years for fertilizer applications at BRANDT, so that puts us in a more proactive position leading up to the spring of 2023,” he says. “As we look ahead to our fall fertilizer season, if yields are average, or below average, then fertilizer application rates will be lower.”

Macronutrients to Watch

When considering how the three major macronutrients categories will perform (nitrogen, phosphorus, and potash), Secor thinks historic trends will come into play during 2023. “For Sunrise specifically, urea is going to see the best performance,” he says. “Urea has been in some cases $30 to $50 per acre cheaper to apply than other forms of nitrogen. We have seen very large UAN and ammonia users switch to urea based on cost per unit of nitrogen. So, I see urea having a great year for us.

“I would say our poorest performer will be phosphorus,” he continues. “Ohio and our focus on H2Ohio makes it really easy to pick on phosphorus applications and I just do not see that being any different in 2023.”

GROWMARK’s Wells agrees with Secor’s market evaluation for crop nutrients in spring 2023. “Nitrogen demand is likely to remain steady as always,” he says. “Phosphorus and potash are still seen as expensive, with many growers having the option to mine their soil banks.”

Meanwhile, BRANDT’s Allen is of the mindset that two out of the three macronutrients will perform just fine during the spring 2023 growing season. “From a demand perspective, nitrogen is always stable because you cannot ‘bank’ it in the soil,” he says. “Demand for potash usually remains solid because a crop’s response to potassium is measurable on most of the acres we service, and farmers see the value in maintaining their potash rates. Phosphate, on the other hand, is typically where we might see a reduction when economic factors are not favorable. In general, our soils range medium to high naturally in terms of phosphorus supplying power.”

Supply Chain Aftereffects

Of course, one of the biggest challenges facing ag retailers during the past few growing seasons has dealt with the supply chain. Starting with the beginnings of the pandemic back in early 2020, logistical issues kept many shipments of fertilizer stick in international waters waiting to dock and unload. At the same time, the entire transportation industry has been dealing with a shortage of CDL drivers and lower-than-normal river water levels, keeping many barges stuck in port.

As GROWMARK’s Wells points out, these kind of market dynamics have presented many challenges for ag retailers during this time. “Soft pricing dynamics tend to lead to deferred decisions throughout all segments of the channel,” he says. “Unfortunately, bulk commodities [like fertilizer] require time to ship and position and cannot be treated as just-in-time. This can lead to supply problems if intentions are not clearly communicated with supply partners.”

Sunrise’s Secor provides his take on the whole supply chain situation, looking at a somewhat “bigger picture.” “Ag retailers really benefited in 2022 from rising markets and rising tides lift all boats, and ag retailers were the biggest beneficiary of that in 2022,” he says. “With many [companies] reporting nice financial performance, we have to admit a portion of this came from price appreciation.

“This year is setting up to be very different and we find ourselves in a declining market,” he continues. “I am going to guess most have already bought something like potash for summer fill that might have been sold in some instances for less than it was bought for. A second big challenge in 2022 is not so much the fertilizer price, but we must also consider higher Interest values. With some growers looking at line of credit with interest rates well over 7% now, we have to consider any ammonia we pay $1,200 for will have a carrying cost of around $7 per month if we at Sunrise carry that for four to five months before we get it sold. We really have to reconsider our retail pricing structure to account for this added cost.

Regarding supply shortages having a long tail in 2023, he doesn’t foresee it happening. “Supply shortages — what a joke!” Secor says. “If there was going to be a supply shortage, it should have been last year in the fertilizer arena, and nothing showed up. I really think we need a supply shortage to come to fruition before this is ever talked about again. Clearly, with these prices of fertilizer, producers are making a mountain of money. In fact, their financial performance showed it last year. They are running as hard as they can right now, so there will be no supply issues. Supply shortages do not cause me to lose any sleep at all!”

Still, BRANDT’s Allen advises ag retailers to be prepared for anything to happen in 2023, nonetheless. “For ag retailers, flexibility is always the name of the game,” he says. “We have to be prepared for whatever comes our way. The 2023 crop year is no exception. On the farm, the relatively high cost of fertilizer with increasing interest rates will likely create an environment that could generate fertilizer cutbacks. For us retailers, inventories appear to be stable in a softening fertilizer market. That means that early positioning will be delayed.”

As for potential wild cards to any of the 2023 spring season forecasts, Allen believes the industry should keep paying attention to the ongoing conflict between the Ukraine and Russia. “The Russian/Ukrainian situation is the most critical wildcard, positive and negative,” he says. “For our Midwestern U.S. growers, grain production challenges in the warring countries could limit world supplies and support strong prices. However, fertilizer export reductions can continue to disrupt supply lines, create critical shortages, and increase input costs.”

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