Knute Rockne, commonly regarded as one of the greatest coaches in football history, coined a number of memorable phrases during his illustrious career. One Rockne truism players are likely hearing on the gridiron as 2016 playoffs wrap up is, “When the going gets tough, the tough get going.”
Tough is the operative word many retailers are using to describe their sales season this fall. There are few bright spots, given the double adversity of low commodity prices and high input costs. To that end, here are some highlights on how the rest of this year is likely to play out for seed, fertilizer, fuel and equipment sales.
Struggles with seed. Helping farmers identify how to get the best return on investment (ROI) from their seed purchases, and still have some margin left, is what keeps Eric Gordon awake at night.
“It’s my biggest headache; it truly is,” says Gordon, plant manager for Brandt Consolidated, Lincoln, Ill.
Analysts say seed is the input farmers may have the greatest ability to negotiate lower for next season. Because prices have tended “to be so strong over time,” farmers likely have “bargaining power with seed companies during 2017,” anticipates Kenneth Zuckerberg, Rabobank senior analyst for farm inputs.
Gordon says he expects seed costs will represent over a third of the total input costs for many farmers in central Illinois. Gordon, who sells primarily DeKalb and Asgrow brands, anticipates a bag of SmartStax seed corn will average between $240 and $310—varying as much as $70 a bag, depending on the hybrid.
While corn growers in some parts of the country are going to more conventional hybrids to lower costs, Gordon doesn’t expect that to be the case in his area. Most farmers there still see value from traits, particularly from herbicide tolerance, though waterhemp resistance issues have dulled its shine. Gordon adds that some farmers see less value in insect traits and are shifting to other products with a lower cost point.
“We have growers looking at Double Pros, so they can get the same hybrid without the rootworm control. In bean stubble, some growers don’t think they need it,” he says.
Corn is expensive to produce, and some growers will lower corn populations or plant more soybean acres.
Tanner Ehmke, CoBank senior economist, says one short-term positive for retailers is farmers will pre-book seed and use incentives where possible.
“But some farmers won’t want to add more debt,” he says. “To make a purchase right now, you would probably lean more toward soybeans versus corn and less wheat. We’ll likely see a few more farmers waiting until the last minute to decide their crop mix, pending their loan renewal at the bank this winter.”
Focused on fertility. In general, all eight of the major fertilizers are a good buy. Most are near 10-year price lows, says Mark Orr, vice president of agronomy at Growmark. He says growers are still price sensitive and looking for the best ROI. But he observes, “Attitudes are a little better than last year.”
Iowa farmer Chris Barron says he expects fertilizer to represent about 13% of his total cost of production in 2017, versus nearly 20% of his total costs as recently as 2013.
“We’re seeing about $25 less per acre, comparing apples to apples,” says Barron, director of operations and president of Carson and Barron Farms Inc., based near Rowley. “It’s an area that has significantly gone in our favor,” he adds.
Davis Michaelsen, editor of the ProFarmer Inputs Monitor, says that as a percentage current fertilizer prices are 23.3% below prices he quoted during the same time last year (October 1, 2015).
“We’re in a very concentrated downtrend,” Michaelsen says.
Of the three macro-nutrients, phosphate probably carries some upside risk for next season, he says, as North American companies are limiting production and there are few global suppliers.
Potash prices were still trending downward as this issue of AgPro went to print. Nitrogen prices also are in farmers’ favor, as new domestic facilities here in the U.S. continue to come online. “Some experts believe we could become a net exporter of nitrogen,” Michaelsen says.
Other side of the coin. Mark Young, agronomy manager, Smith Fertilizer & Grain, Knoxville, Iowa, says nitrogen offers a good sales opportunity for retailers—if they approach selling it strategically.
Young credits United Suppliers’ Sustain Program with the strategies he and his team use. In practical terms, he says the program entails talking with farmers about practices, products and rates.
Key questions his sales team asks farmers include, “‘Are you shifting fertilizer from fall to spring, using split applications, one rate, variable rates, planting a cover crop, going with minimum tillage?’ We’re trying to establish a baseline for the whole farm enterprise.” Young adds that his team also spends more time helping customers evaluate different nitrogen products and where they fit into the grower’s operation.
“In the past we didn’t do that; we’re much more specific now, and stabilizers are part of the discussion,” he says. “If you’re presenting good products with tangible benefits farmers will listen.”
Looking ahead to January, Michaelsen says fertilizer price lows often occur during the month, making it a good time to book for spring. He notes that some growers and retailers, who can store or defer delivery, are booking fertilizer for the 2018 crop.
“I think it’s a good idea if they can handle it,” he adds.
Factoring fuel prices. Between now and January, fuel is likely to continue being a good buy. The key is to determine budgets and then lock-in some gallons when prices near that point, recommends Tim Danze, hedging manager for MFA Oil, Columbia, Mo. He tells customers to “start paying attention in November to forward-contract offers.”
Michaelsen recommends farmers book about half their fuel needs around the first of December, but says that might differ this year with the gamesmanship currently underway in the crude-oil industry.
“That could artificially inflate the crude-oil futures markets which sets it up for a bit of a fall,” he says.
Danze agrees and says he will be evaluating the market carefully following OPEC’s next meeting, which is scheduled for Nov. 30.
He adds, “We don’t know the full impact the Brexit, and issues with Deutsch Bank and Wells Fargo, will have on the market either. In this global market we all deal with, the potential ramifications can make you a little uneasy.”
Michaelsen says the potential for a cold winter in the Northeast is also on his radar. That would mean the demand for heating oil which is used widely to heat homes there—and is the same thing as No. 2 diesel—would increase. His advice: Keep an eye on heating-oil futures and diesel.
“There’s a definite relationship between the two,” he notes. “If you see heating oil go up in price, you usually have about a two-week lag time before diesel prices go up.”
Little movement with equipment. Equipment dealers see few bright spots on the horizon, according to Dennis Stein, Michigan State University Extension educator.
The one positive this year has been in sales of farm tractors under 40 hp, which have a broad customer base on small-acreage farms, according to the Association of Equipment Manufacturers (AEM).
This fall, AEM said total sales of all categories reported were above the five-year average. However, higher horsepower and higher capacity machines continue to lag. For September, year-to-date sales of 100+ hp tractors were down 45%; four-wheel-drive tractors were down 68% and combines were down 60%.
“When you talk with machinery dealers, their inventory is high and they are moving really little,” Stein says. “Upgrades are starting to get delayed, and farmers are now happier with what they have.”