Industry representatives turned out in force for the 2009 Southwestern Fertilizer Conference in San Antonio July 25-29. Conference organizer Pat Miller said 1,246 members were on hand for the five-day conference, roughly 90 more than the previous year’s record attendance. Spouses brought the 2009 attendance figure to 1,356, also up from the 2008 record of 1,310 total attendees.
Compared with the 2008 conference, however, when pricing for some fertilizer products spiked to record highs and buyers were in a sprint to lock in product, sources said the tone at this year’s conference could best be described by one word ?Çô caution. “There’s just very little business being done,” said one. “Nobody wants to get burned again.” Another source, commenting on the lack of activity, referred to the conference as a “four-day funeral.”
The conference’s general session speakers were also reserved and cautionary in their Tuesday morning presentations, particularly when compared with the previous year’s exuberance, whether the subject was Washington politics, the credit crunch, or crop pricing forecasts.
Richard Brock, president of Brock Associates, warned that the farm economy is not immune from the global economic collapse. “Our economy is consumer-driven,” he said. “Folks, the consumer is out of work.” Referring to the previous year’s enthusiasm, Brock said he knew the industry was in trouble when he observed the “herd mentality” of those willing to accept rosy predictions of an uninterrupted up-cycle for years to come.
Brock said deflation will be the name of the game for the next several years, and tougher times are still ahead. He predicted a sharp decline in corn, soybean, and wheat prices for the balance of 2009. “It’s hard to argue any kind of tight supply,” he said, noting that even if USDA drops its corn acreage estimate in August, average yield estimates will have to go up based on the bumper crops currently growing in Iowa and Nebraska.
Brock also spotlighted the struggling dairy, hog, and beef industries. “Agriculture, whether we like it or not, has to have balance,” he said. “You can’t survive with one sector making all the dough.”
Brock left attendees with some room for hope. While very little commodity news is positive, he observed, it is bear markets that allow good managers to separate themselves and capitalize on opportunities. He also noted that agriculture will “continue to be the safest and most profitable sector in the business world” as the world economic crisis continues. “Volatility is going to be high, but the profit potential will be better for ag producers than almost any other sector.”
Ford West, president of The Fertilizer Institute, offered a frank assessment of the political climate in Washington, highlighting the current administration’s emphasis on social and corporate responsibility, green technology, sustainability, and an aggressive stance on global climate change. “Elections have consequences,” he said, and we now have a “Democratic agenda.”
West talked of the costs of cap-and-trade to the industry, and the likelihood of “leakage” as greater emission controls force industry offshore. The U.S. is now “leading the way in a new, global CO2 reduction treaty,” he said. “We are going to have some type of carbon footprint reduction.”
West described the fertilizer industry’s effort to market itself as a green, sustainable industry. He referred to the U.S. jobs directly involved in fertilizer manufacturing and distribution as “green jobs,” and said enhancing that image remains a challenge for the industry. “We have to work to show that we are part of a sustainable food system,” he added.
The theme of sustainability was also addressed by the conference’s opening speaker, J.R. Simplot Co. CEO Bill Whitacre, who said the fertilizer industry needs to make its case to both customers and communities. “It’s part of who we are as a fertilizer industry. It is no longer a buzz word,” he said, referring to industry members as “active environmentalists” instead of “environmental activists.” Consumer demands have changed, he said, and the fertilizer industry has “an opportunity to participate. We have to convey that our stewardship is responsible.”
Whitacre said the global food crisis has not gone away, and population growth will make it a “very profound” issue over time. “Agriculture is a very good place to be, and it will continue to be in the future,” he said.
He cautioned, however, that the pricing volatility of the last year and the resulting usage cutbacks hurt the industry’s image and have contributed to a credibility problem. “We did just experience a year in which the value of fertilizer diminished,” he said, noting that more should be done to “buffer the grower from the volatility in the fertilizer industry.”
Erin Fitzpatrick of Rabobank International rounded out the Tuesday morning speaker panel by focusing on how the credit crunch has impacted farmers, retailers, and the fertilizer industry. While noting that “banks remain cautious” and are focused on preserving capital and managing risk, she said ag lenders have performed better than other sectors and U.S. farmers do have access to funds.
Fitzpatrick reported that U.S. farm size is growing and industry consolidation has raised the demand for larger loans. Defaults remain low in the ag sector, but the number is inching upward as the crisis continues. As for ag retailers, she said the middle markets have seen tighter credit than farmers, and retailers have been forced to take steps to cut costs and manage inventory through increased scrutiny of inventory valuation.
Strong profits and high cash levels have made fertilizer producers a stable sector for lenders. “Banks are searching for yield, and ag companies look attractive,” she said. But banks are under increased scrutiny from regulators, she cautioned, and are asking more questions of borrowers. Banks are looking for strong risk managers, and are shifting from “covenantlight” lending to more structured facilities, she said.
Asked if the worst is over, Fitzpatrick said credit remains tight and the recovery will take awhile, but signs of stability have emerged. “Banks will lend to those they perceive as survivors, and food and agribusiness is a necessary industry,” she said.
