Editor’s note: The upcoming PACE Executive Forum will focus on three important topics: New Supply/Demand Dynamics, the Changing Agribusiness Environment, and the New Generation of Agriculture. Below you will find an in-depth story that looks at the new supply/demand dynamics in the fertilizer market. This will serve as a preview of what will be discussed at the PACE Executive Forum October 27-28 in Kansas City.
Talk with anyone within the agricultural marketplace these days, and the same three words keep coming up again and again: Supply chain disruptions. As Joe Dillier, Managing Director for Ameropa North America, aptly put it at the start of 2022: “It’s an unprecedented year; a crazy year. I’ve been in this business since 1989 and I’ve seen years where demand was pulling prices, like in the early 2000s, when natural gas prices connected to fertilizer prices, and I’ve seen years when costs were driving prices. But I’ve never seen a year where EVERYTHING was mixed up, both on the demand and supply side!”
And most ag retailers tended to agree with this view. According to the 2021 CropLife 100 survey, 95% of respondents indicated that they had trouble getting products through the supply chain during that year’s fall season.
Of course, by now, everyone is pretty familiar with the myriad reasons for this unprecedented supply chain crunch. For agriculture, it all ties back to early 2020, when the COVID-19 pandemic began disrupting the normal flow of products from overseas producers to the U.S. And as the world began to re-open in mass during mid-2021, high demand largely overwhelmed the distribution system’s ability to keep pace. This also caused prices for such products as fertilizer to double (and sometimes triple) within the span of a few weeks leading into the crucial spring growing season.
As Robbie Upton, Director, Marketing-U.S. Crop at BASF Agricultural Solutions North America, told CropLife at that time: “Supply chains that support agriculture and our businesses have been stressed for nearly two years due to a variety of factors, including labor shortages, transportation availability and delays, natural disasters affecting raw material supplies and COVID-19.”
So, given all these troubling factors leading into the 2022 growing season, how did the ag retail industry and its grower-customer base fare during the spring fertilizer application season? According to Samuel Taylor, Executive Director, RaboResearch for Rabobank, things went more smoothly than many market watchers had anticipated.
“The agricultural industry did pretty well this spring,” says Taylor. “I think this speaks to the durability of the supply chain and the price mechanisms that drive it. They did work.”
Steve Spangler, Vice President, Fertilizer, for Integrated Agribusiness Professionals (IAP), agrees with this assessment. “This past spring, our owners did better than expected,” says Spangler. “Many of our members do business in California, and California is a big import market for fertilizer. For instance, approximately 75% of the UAN used in the state comes from offshore. But the drought conditions out here kept the demand for fertilizer on acres down, so most of our customers were done buying by March. This dropped demand, so our owners were able to supply what was needed and had some product leftover to use for the fall season.”
The Quest of Alternatives
Still, adds Spangler, there was pushback from grower-customers regarding some of their fertilizer purchases, particularly phosphate and potash. “This led to our members looking at offering some alternatives for growers to consider,” he says. “For example, we started see some demand for mono potassium phosphate, which comes from Israel.”
In addition, some IAP grower-customers in spring 2022 began considering using organic or biologicals for their crop nutrient needs. “There are a number of biofertilizers available in the market,” says Spangler. “We are looking at those because they might have some interesting fits.”
Going into the spring 2022 season, another concern for the potash marketplace was where supplies would be coming from. Globally, Russia and Belarus supply approximately 17 million tons of potash for fertilizer producers and their customers. However, when Russia began its invasion of Ukraine in late February, many countries stopped doing business with the country as a result.
However, according to Rabobank’s Taylor, fears of no Russian potash making it to the world market during the spring ended up being unfounded. “For the most part, the flow of fertilizer out of Russia is back to normal these days, basically,” he says.
Given all these factors, the fall 2022 application season for fertilizer was shaping up to be fine as well. In fact, according to Joe Kilgus, Director of Sales & Marketing, Crop Nutrients for GROWMARK, Inc., the move from corn acres to soybean acres during the spring kept demand for certain crop nutrients such as nitrogen down during these months. This meant that most ag retailers had supply available for the fall.
“We’ve supply for the fall,” says Kilgus. “It comes down to desire. I’ve always said that there will be enough fertilizer in the U.S. to grow the crops each year. In in today’s world, it goes back to cost. Customers can still get what they want no matter what – if they are willing to pay for it!”
Just-in-Time Just Passe?
According to Kilgus, another reason ag retailers were in a better position to supply crop nutrients to their grower-customers for 2022 tied back to the better planning ahead by everyone involved in the marketplace. Since its inception basically, the agricultural market has largely relied upon “just-in-time” delivery to handle crop nutrient needs. However, as the pandemic disrupted the regular supply chain for much of 2020 and 2021, companies began planning much further ahead – from three to six months out to 12 to 18 months forward — to better prepare for demand as the season rolled around.
He adds that hopefully, this level of pre-planning will replace the just-in-time mindset for the entire industry. “I hope planning ahead becomes the new normal,” says Kilgus. “This gives everyone in our business the opportunity to take advantage of the market conditions. Just-in-time in agriculture these days is much harder to pull off properly.”
Another factor working against just-in-time for agriculture, adds Rabobank’s Taylor is the high cost of carrying costs for ag retailers storing fertilizers. “Carrying costs have gone up substantially throughout the supply chain,” says Taylor. “Costs today range from $800 to $900 per ton, which is a lot higher than when it was only $200 per ton a few years ago. This has really magnified risk in the supply chain for companies, meaning operating on a just-in-time basis is just not practical. Fore planning is definitely the way to go!”
IAP’s Spangler agrees. “It’s extremely important to keep communicating with the customers as far forward as possible,” he says. “Companies can’t be relying upon guesswork in today’s volatile environment.”
Looking at the bigger picture, Rabobank’s Taylor believes this kind of forward planning offers another opportunity for ag retailers to increase their importance to their growers. “This offers everyone in ag retail the opportunity to foster trust in the current uncertain environment we are in,” he says. “Ag retailers are already known for being trusted advisors to growers, but fostering an even deeper level of trust will likely reap many additional benefits for these businesses in the years to come.”
PACE Executive Forum: Adapting to the New Fertilizer Dynamics