farmgate: Fertilizer: The Latest Chapter In The Changing Face Of Agriculture.
First there were significant upward moves in grain prices. Then the marketing world caved in with elevators eliminating forward contracts as marketing tool. As farmers compare notes and listen to experts about the changing face of agriculture, everyone is bracing for the next jolt in farming’s roller coaster.
Farmers need to have their seat belt buckled for changes in the fertilizer industry says Iowa State University ag economist Roger Ginder. He says the good old days are gone in the retail fertilizer market. Undoubtedly you have heard about nitrogen and potash being sold for upwards of $1,000 per ton for the 2009 crop. But Ginder says the change in the industry goes beyond the price chart on the wall of the dealer. He’s becoming concerned about farmers being able to find fertilizer retailers. His article in Iowa State’s Integrated Crop Management News points to changes several years ago as the start of the trend. The bankruptcy of Farmland Industries eliminated many retail fertilizer outlets, and then CF Industries pulled back to wholesale distribution centers. Ginder says fertilizer may be a global industry, but its links to the grassroots level is disappearing.
The global nature of the industry requires integrated logistics, more lead time in production and delivery, and more issues with international exchange rates in a volatile market. With Farmland and CF Industries woven into the fabric of farming, it made profitability more difficult when trying to balance the upstream production with the downstream sales and application. Ginder says fertilizer has to move into warehouses unpriced ahead of the spring application season, and there is too much price risk for companies needing to watch their profitability. The fertilizer industry now has players that are more production and distribution oriented than farmer oriented. Without the ability to hedge price risk in fertilizer, Ginder says, “There is no good mechanism for retailers to manage the inventory price risk they are forced to accept.” With the rising prices for fertilizer, the price risk is magnified, and lenders are reluctant to help assume the risk.
The changing face of the retail fertilizer market will impact farmers who both wait to buy and see prices continue to rise and who buy early only to see prices fall later. In addition, Ginder says farmers will face the risk of supply availability. The local or regional dealer may not be large enough to commit to the minimum quantity being offered by the fertilizer producer, and pay for it in advance. Some Cornbelt farmers heard fertilizer dealers earlier this year ask for 2009 orders with a pre-payment requirement to guarantee delivery.
The fertilizer retailers that remain in the business will be faced with a number of challenges, such as maximum and minimum orders and pre-payment, and without any other means of managing risk, those parameters will be passed on to farmers. Ginder says fertilizer dealers may be unable to fill all customer orders, and farmers may find it more difficult to price shop. Ginder says the solution may require farmers to build a relationship with a fertilizer dealer and maintain frequent communication.
Summary:
Changes in the fertilizer industry have come at the macro-economic level, shaking out some companies that either could not keep up, or elected to change their business practices and reduce their retail level exposure. Those changes included global production issues, international exchange rates, and distribution challenges. The impact on production agriculture is that farmers may have to place orders a year in advance along with a pre-payment, and may be unable to get exactly what is needed.
Posted by Stu Ellis on August 25, 2008 12:16 AM to farmgate