Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.
Miles & Miles of Monitor -- The Changing Face of Ag Retail
Dec 28, 2012
The Pro Farmer Profit Briefing Seminar Series paid a visit to Illinois in it's third swing, and both meetings found the Inputs Monitor focused on the relationships between growers and their local retail outlets. As I have said before, the fertilizer game is changing, and along with it, buying and selling habits are changing as well.
Inventories at local co-ops are much smaller than they used to be and are, therefore, more subject to market price fluctuations. So a balance must be reached in which both the retailer and the grower can manage a profit, creating a mutually beneficial relationship based on accurate pricing data, informed decisions and firm handshakes.
Why farmers buy fertilizer where they do is usually based on two factors...proximity and long standing relationships. The length of time a grower is willing to spend on tractor rides to and from the co-op has historically been a top determining factor on where grain is sold out of the bin. That threshold determines long-term grower/retailer relationships and these are vital to the farm economy.
You have always dealt with 'Frank', and you want to continue to do so. 'Frank' has always counted on you as a customer and he would like to keep it that way, too. So when growers go to their local, tried and true co-op with a price in mind, retailers will often work to satisfy their customer.
Growers should not hesitate to ask for a lower price, if available pricing data shows room locally to the lowside. This is where your long-standing relationship comes into play. To simply say, "I see they have DAP for $20 less per ton a few counties over...do you have any room for that?", will not offend a seller. In fact, when resupplying, that same retailer probably had a similar conversation with his supplier.
The worst your dealer can say is, "I'm sorry, I don't have any room to wiggle here...the posted price stands." Given that, the deal can proceed with a hand shake and a surety on the part of the buyer that the bottom dollar deal has been struck. But if there is room, a $20 savings a few counties over may inspire a $10 per ton discount at your local spot -- and that can quickly add up to a savings of thousands of dollars.
Rock Island --
An Illinois retailer and I were talking about the service the Inputs Monitor provides. I had mentioned in my presentation that knowing the pricing data in and around one's own crop district can really give a grower some leverage when booking inputs. The retailer said, "It sounds like you think co-ops are trying to pull a fast one on farmers...I just don't always have room to wiggle on prices."
I quickly sequestered myself to listen intently to my own words on tape. Let me assure the retailer that the Monitor stands to assist the grower and the retailer by helping each maintain positive, profitable relations in the changing environment of fertilizer pricing.
Transparency in the new era of fertilizer is good for everyone involved. The end-user can be assured he is garnering a reasonable market price for nutrient, based on updated local pricing data. The retailer can be assured their prices are in line with what growers are willing to pay for fertilizer and farm fuels, and make strategic purchases with greater effectiveness when resupplying inventories. In this way, upstream suppliers can be held to account by retailers who are armed with the same pricing data.
"These are not simple markets anymore," the retailer explained, "Co-ops just don't want to warehouse as much nutrient as they used to." -- and that is wise.
A number of nutrient retailers got hung out to dry when fertilizer pricing chased the price of corn to the upside in 2008. With a lot of inventory overhang and a pricing spike followed by a sharp dropoff, some went so far as to have to close up shop. As a result, co-ops are much more market savvy on inputs in the present day. Upstream suppliers are slowly becoming more transparent in regards to production and stocks on hand, and if retailers and end-users are unified and similarly educated on these factors, the fertilizer pricing revolution will reach to the highest levels of the industry.
In the short-term, U.S. nutrient pricing -- N especially -- will be dictated by transport costs. But moving forward, retail outlets will soon have much greater flexibility in suppliers. Domestic N will increase to net exporter status in the next six-or-so years based on new production facilities and numerous N production expansions -- 90% of U.S. Phosphate is already domestically produced -- up to 90% of the K spread in the U.S. is imported...mostly from Canada, which isn't so bad, but domestic Potash production is showing upticks as well.
This means the move toward a more market savvy co-op will hold upstream producers to greater market accountability, and ultimately help downstream retail outlets profit alongside the grower. Everybody wins through transparency. And after all that, if your retail outlet has no room to wiggle on price, it is likely because the dealer's best deal is already in place, and the savings have already been added. In that case, a firm hand shake will close the deal with both sides maximizing their profits, and the time honored grower/retailer relationship will continue to benefit both.
Photo credit: ClaraDon / Foter / CC BY-NC-ND