Wednesday, December 03, 2008

It's a new world for fertilizer, too...

Despite strong skepticism by fertilizer execs, farmers aren't buying their arrogant pricing or their products either.  Taking ammonia for one example: [from The Market - an excellent source for fertilizer information.] 
Storage tanks at Tampa are brimming and ships have nowhere to unload, while the pipeline
to the midwest has not be drawn down. The Mississippi river barge market is at a complete

The weakness in demand has forced the shutdown of two plants operated by Agrium and
Mosaic, but a third plant operated by Terra Industries in Donaldsonville is defying market
predictions by staying open.

Agrium's 280,000 tonne/year Redwater 1 unit in Canada's Alberta province is considered a
swing plant. Agrium will not bring the plant back up until there is a market rebound. A
second Agrium unit at Redwater has a capacity of 680,000 tonnes/year and is still in

Mosaic's Faustina plant in Louisiana has been down for two weeks. The plant has a capacity
of 510,000 tonnes/year of ammonia. 

A steep fall in industrial demand for ammonia is contributing to negative sentiment.
Ammonia is used as an intermediate in the production of nylons, acrylonitrile for fibres and
plastics, isocyanates for polyurethanes, hydrazine and explosives. This means ammonia is
partly exposed to the steep decline in the US housing and construction, automobile, pulp
and paper industries, via a range of chemicals including caprolactam, nylon, melamine, and
acrylonitrile-butadiene-styrene. One bright spot is the mining sector demand for explosives,
which is said to be holding up reasonably well among coal producers in particular, as a peak
production season begins.

 Even more stunning is the outlook for phosphate products.
The phosphates market remains in search of a price floor. All major exporters have
significantly curtailed production in the face of virtually non-existent demand globally. 
These comments tie to a website for the fertilizer retailing industry, and it appears all is not well among the ranks.  Here's one dealer comment:
Q: “…what is the mood of the Ag-retailer going into deeper and perhaps uncharted water?”
A: “As for the mood of the Ag retailer…it is degrading as we get keel-hauled by our customers for cost increases promulgated by our suppliers who are clearly capitalizing on the situation. We all hear about how the global market situation is entirely responsible for this, much as we hear how the global situation is responsible for the price of gasoline and diesel. Our suppliers apparently think we are too naive to look at their quarterly earnings reports. Yes, we realize we are in a global market situation and yes, we realize that our suppliers are capitalizing on the situation while we are getting our butts chewed off by the people who have to actually pay for this stuff. As I told one supplier the other day…it is my fervent hope that the folks managing their company are still in place when the seeds they are now sowing have ripened for harvest. They are systematically destroying demand that has taken years to build all in the name of short term gain. I have never seen such unbridled gluttony (and ignorance) in XX years.” [More]
Does the seed industry honestly think they can shrug off deflationary pressures in their corner of ag? Probably, given the fanatical mindset of absolute certainty in their business plans, but color me doubtful.  Seed price too will come under even more intense pressure, and just as I'm trying to figure out how to grow corn for $3, they will be struggling to learn to sell seed for $150.  That's my guess.

Watching soy prices fade rapidly, one has to wonder if the repeatedly-forecast "bidding for acres" has become a Dutch auction.


Anonymous said...

I have had that conversation with two seed salesmen this week. I encouraged them to check back with me when they were in a position to be compensated in direct proportion to the value that they bring to the table. They considered that to be fair four months ago. I will not burn my equity so they can fund "research" so that I can pay more for the privilege of losing more next year. I think you are right on with the $150 stuff.

Anonymous said...


What are you hearing on the health of ag retailers? Seems to me that there could be blood in the streets of those that have much high priced fall fert in inventory. May need to think where to do your tax mgmt prepay.

John Phipps said...


I would not prepay anything. I have never really grasped farmers tying themselves in knots to postpone taxes, but if you must, this is the year to recognize unsecured creditors get well and truly reamed.

At lease make sure you understand what happens if fertilizer prices fall.

I would be especially cautious with independent dealers, who cannot count on the parent company to eat the inventory cost.