Declining fertilizer prices and plentiful supplies should be good news for growers facing low crop prices. But they and their ag retailers have been struggling with determining the right timing to pull the trigger on purchase decisions. And their choices will seriously impact this year’s cropping season.
Why the soft market? For one thing, a strong U.S. dollar is encouraging more material to come to the U.S., explains Gene Vernon, director of retail crop nutrition sourcing with J.R. Simplot Co. in Boise, Idaho. “With all that increase in supply and activity, it’s driving prices downward,” he says.
“There is some hesitancy in the market as far as when customers are ready to buy, when distribution channels are ready to buy, and there are a lot of people sitting on the sidelines today waiting for that right time,” Vernon adds. On top of that, the oversupply is causing dealers to question whom to align and partner with.
“We’re waiting too,” says Dave Dufault, vice president and general manager for Simplot’s agribusiness divison. “But do you wait too long to get the cheapest price and not have it available when your growers want it? Or do you buy it today for what seems like a very fair value with the thought you’ll have it on hand when the growers are ready for it? We’re trying to find the sweet spot.”
One Midwest dealer said because the markets were still soft, his team did not feel comfortable bringing in product yet. “In the past four to five years, December would have been the time, but we’re in a declining price market,” he says.
Looking back to 2015, fall application activity was mixed. For instance, Barry Ward, extension ag economics specialist at Ohio State University, reported that many growers there were “reluctant to put a lot of money down right now.” Some were still trying to be conservative on spending and actually cutting costs.
The nutrients most affected seem to be phosphorus and potassium. In northwest Ohio, for instance, where excessive moisture during spring and summer damaged crops and yields, growers may back out of phosphorus and potassium applications this fall and winter. Ward says that “as a cost-cutting measure, they’re trying to manage some margins going into 2016.”
When they do apply phosphorus and potassium, he is seeing growers managing these nutrients “on a more precision ag basis based on soil testing,” he adds. On the phosphorus side, growers will particularly aim to be more site-specific as they try to protect sensitive watersheds, such as those near Lake Erie.
As for nitrogen, Ward says he doesn’t expect to see a dramatic cut in applications. Most of his area’s growers are in still in a good enough position financially and won’t want to cut fertility to the point of negatively impacting yields. “Some are managing this transition to lower margins by trying to push yields rather than cut so much on the cost side,” he explains.
But one Indiana retailer said fall nitrogen application in his territory was trimmed 15 to 20 percent from normal rates. “That’s how growers perceived they need to cut the budget to make things at least close to profitable,” he said.
Come spring, Larry Wenthold, vice president of the agronomy business unit at River Valley Coop in Davenport, Iowa, believes nitrogen demand will be strong due to a short fall season on ammonia. He’s also anticipating more corn acres.
Logistics And Pre-Buys
The delay in purchasing has real implications for other aspects of the crop year.
“Some fertilizer manufacturers are still producing as if the industry was taking normal deliveries, and they’re running out of space to put some of this material,” says Vernon. “They’re utilizing rail cars and some off-site facilities for storage.”
He envisions a problem with turnaround on those railcars once customers start taking deliveries. “It’s going to jam up the logistics in the delivery system. How long and how severe—that’s yet to be determined. But after the first of the year—and I would anticipate more in the springtime—there are going to be some challenges around railcar and trucking availability.”
One Midwest retailer agreed. If all dealers hold off buying fertilizer, hoping for the bottom of the market, and it happens in spring, that will be “really dangerous” logistically, he says.
Plus, over the last seven to eight years his suppliers have decided to bring in only what they know they have a destination for. “They’ve proved they won’t bring in product unless they have firm commitments on what you’re going to need,” the Midwest retailer says.
There also seems to be no rush to pre-pay. “Quite simply, grain prices have not moved,” the retailer says. The price hasn’t given farmers the incentive to go out and sell their crops.
Ward notes that in high-profit years, dealers managed income taxes by doing lots of pre-pay—for seed and chemicals as well as for fertilizer—for the following year. “There might not be much of a push to put a lot of money down prior to the first of the year,” he says.
As Wenthold puts it, “I do see a shift in check writing from December to January. Growers have not been excited to finalize decisions and write checks.”
Western Perspective
While growers in the Midwest may be struggling with finances and fertilizer, the picture to the West is considerably better.
Dufault explains that Simplot services the 14 western states, from North Dakota, South Dakota, Minnesota and Nebraska to the West Coast. “Yes, soybean prices are low, I get that,” he says. “But we operate where there are sugarbeets and potatoes and highly productive alfalfa. Then you get into California where there are up to 320 crops grown.”
Indeed, he notes that the potato grower who did the right thing with contracts is doing well. The alfalfa grower in the West is doing okay. And the nut grower and the grape grower in California are doing really well.
So while corn and bean producers’ fertilizer programs are looking uncertain, in specialty crop markets it’s pretty much “business as usual” nutrient-wise, Dufault says.
He believes fertilizer volumes sold in Simplot’s territories will be dictated more by Mother Nature—Can growers get out to put product down?—than by commodity prices. Now, the Pacific Northwest and California were seeing record levels of rainfall and snowfall, courtesy of El Niño. The implications for agriculture in the region are huge.
In fact, with the additional moisture, Vernon sees growers farming California acres that have been idle the last two years due to the prolonged drought. Thousands of acres of open ground could bounce back into full production in 2016. “Growers that fallowed these fields had put water resources on their permanent crops where they were making more money,” he says.
Precision ag plays a large role in Simplot’s fertilizer business. Growers formerly reluctant to embrace variable-rate application have seen the technologies proven—and paying off. “They’ve seen that reducing application rates or not applying to certain pieces of the field can be a benefit,” says Vernon.
“As a sales organization, we are recommending adjusting rates for crop nutrient uptake because sometimes selling a little less fertilizer is more sustainable,” Vernon adds. “We had to re-wire their thinking that this is a good thing for their business overall.”
Dufault says that while it’s pretty straightforward to prove production improvements in corn fields via yield monitors, for instance, the same cannot be said for the many specialty crops Simplot services in California. “We don’t have a way today of getting variable yield information on grapes, almonds, pistachios, walnuts, citrus, all those permanent crops,” he explains. “Proving to the farmer that spending money on precision agriculture will bring a return on that investment can be pretty challenging in this segment.”
No matter, Dufault says his team is excited about the diverse market it serves—and the coming fertilizer year. “There are nitrogen products, phosphate products, potash products, sulfur, zinc, all these things. At the end of the day our growers want to grow good crops, and they need to be maximizing productivity,” he says.
Source: CropLife