Fertilizer Dealers: Charging ahead
As the standoff between dealers and farmers thaws, an industry leader looks at how dealers will adapt new business models
Compiled by staff
Published: May 20, 2009
 When the bottom fell out of fertilizer prices last September it sparked an economic upheaval still echoing throughout dealerships and farms today. Ford West, President of The Fertilizer Institute, spoke with Farm Futures about what may happen to the industry going forward.
FF: How would you describe the situation in many fertilizer dealerships today?
West: Because of the tremendous drop-off in prices in September, 2008, a lot of people are upside down on inventory. That has caused a lot of tension in trying to move that material out. Every company has a different business plan to try to do that.
There's still a standoff between dealers and farmers to some degree. Once we get through the spring season and get back to more normal conditions in the fertilizer market, we'll need to start watching world demand - that sets the overall tone of the market.
FF: How will things change at dealerships as a result of this year?
West: Two or three things will happen. One, retailers will rethink their buying habits. They have to start layering their buying. It's too big a risk to purchase your entire inventory at one time when you don't know what the market is going to do.
Second, we'll see more contracts between dealers and farmers. When the dealer goes into the market to buy fertilizer he's going to go to his farmer customer first and ask for a commitment. It'll be more than just a handshake.
Third, farmers have gone through this upswing in high fertilizer and some of the bigger guys are rethinking their whole fertilizer strategy. They're going to want to add more on-farm storage. That'll be a challenge, as we have certain regulatory compliance rules that we have to deal with, and that will apply to farmers if they get into the storage business.
FF: Will the industry consolidate?
West: That's one of the unintended consequences of this situation. We will see more consolidation in the fertilizer business. That can come anywhere up and down the supply chain. As farmers get bigger, there will be a bigger squeeze on retail dealers. To provide services and supplies to farmers a fertilizer business will need to be a well financed, well managed organization.
In July last year if you bought a barge load of urea at $800 a ton it was worth $16 million; if you bought it at the end of September as the bottom fell out of prices, its value dropped to $300 per ton. You just lost $10 million. You have to have a pretty good balance sheet to take that hit. If farmers are getting bigger then retailers are going to have to get bigger too.
FF: Is there a case to be made against more on-farm fertilizer storage?
West: I hope farmers continue to use retailers. They have a lot of advantages in services, like certified crop advisers. That's a headache the farmer doesn't necessarily need. The key for farmers is to be as efficient as they can be in the use of fertilizer. We have to meet some big food production goals, like increasing food production 50% by 2025.
Retailers can provide that efficiency for the farmer, and then he can focus on where he can really do well - growing and marketing his product.
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Tagged: fertilizer, farm, the farmer, farm futures, fertilizer prices
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