Struggling fertilizer makers search for next great crop product
Fertilizer makers are boosting output of branded niche products, drawing from the playbook of plastics producers, just as the volatile crop nutrient industry endures its worst slump since the recession.
The products from companies like Mosaic Co, Intrepid Inc and Agrium Inc may have relatively small markets, but their unique nature leaves them somewhat buffered from the volatility of widely produced commodity forms of potash, phosphate and nitrogen.
Chicago corn futures are trading at about half their record high of mid-2012, dragging down fertilizer values, and last summer's breakup of Belarusian Potash Co has upended the once tightly controlled potash trade.
But while conventional potash producers have cut back production, output of specialty products is on the rise.
Some generate larger profit margins than traditional products, while others benefit from tapping markets with limited or no competition.
It is a strategy long followed by makers of polyethylene, the most common plastic. These companies have increased their profits through innovation, by developing such now-commonplace products as garbage bags with drawstrings and packaging designed to keep mixed salads fresh.
"You win because you typically get somebody to pay more, and may be creating a market that didn't exist before," said Cowen Securities analyst Charles Neivert.
For fertilizer companies, such efforts are "totally critical," said John Malinowski, vice president of business development for private agribusiness J.R. Simplot.
The company soon plans to begin production of Sulf-N 26, a technology that it is licensing from Honeywell International Inc and which promises the crop benefits of ammonium nitrate with lower explosive potential.
The risk of standard ammonium nitrate was highlighted last spring when a blast at a Texas fertilizer plant killed 14 people and injured 200.
"Long-term, we are looking at differentiating our portfolio because it does give you more consistency," Malinowski said.
Plymouth, Minnesota-based Mosaic bundles several different crop nutrients in each granule of MicroEssentials, while Intrepid has turned once-wasted langbeinite ore into Trio, a product aimed at high-value fruit, vegetable and tobacco crops.
Agrium boosted output last year of its time-released nitrogen.
"These are all product differentiation strategies to maintain or even take share from traditional fertilizers," said BCMI Research analyst Chris Damas. "It's a great idea."
Specialty products like MicroEssentials generate more consistent demand than raw forms of potash and phosphate, said Kevin Kimm, Mosaic's senior director of marketing in charge of premium products.
"Growers are striving to produce more per acre," Kimm said. "A lot of the (technologies) you're seeing in the seed sector of advanced genetics are needing a higher level of nutrient uptake."
Mosaic promises higher yields with MicroEssentials, which contains nitrogen, phosphorus, sulfur and zinc, and sells it in North America and Brazil. In the third quarter, sales reached 233,000 tonnes, or 8.5 percent of the company's total for phosphate products. Mosaic expects MicroEssentials sales to hit a record 1 million tonnes in North America this year, Kimm said.
MicroEssentials generates bigger margins than Mosaic's conventional products, Kimm said, but the company declined to release data.
Mosaic will introduce its Aspire proprietary potassium and boron product in January.
Denver-based Intrepid is ramping up production of Trio, which sells at a premium to the market prices of its three components - potassium, sulfur and magnesium.
Intrepid pays more to produce Trio than conventional potash, but it allows the company to profit on a formerly discarded part of the mixed ore that it mines.
The company sold 125,000 tons of Trio in 2012, compared with 839,000 tons of potash. As Intrepid moves into a higher-grade ore zone, Trio production may rise beyond 200,000 tons in 2014, Chief Financial Officer David Honeyfield said on Oct. 31.
To be sure, unique products pose unique challenges.
Development costs can be high and result in losses up front.
The world's biggest fertilizer company, Potash Corp of Saskatchewan, has mainly stuck to selling potash, phosphate and nitrogen in their commodity forms. It offers some specialty products for industrial use, but not for agriculture, said spokesman Bill Johnson.
Even when farmers become familiar with a branded product, it is still subject to risks like weather. Demand for Agrium's Environmentally Smart Nitrogen, like other fertilizer products, weakened in the third quarter, partly because of a short fall window for U.S. farmers to spread it.
But sales of the polymer-coated fertilizer, which controls the release of urea into the soil based on temperature and moisture, have risen every year since 2008, hitting a record 284,000 tonnes last year.
Especially during tough times, having unique products to sell is an attractive option for more fertilizer companies, which operate in perhaps the most cyclical industry of them all.
"I think they're looking for everything they can get their hands on to do that," Cowen analyst Neivert said. "Many are coming to the conclusion that 'fertilizer isn't what we had talked about as a company three or four years ago.'"