Some 615 industry participants were on hand in Las Vegas, Nev., Dec. 5-7 for the 2007 Agricultural Retailers Association Conference & Exposition. Conference organizers said the attendance figures at the Rio All-Suite Hotel and Casino were a record, up significantly from last year.
Many of the event’s speeches focused on dealing with increased risk at the retail level, both in terms of product supply and pricing. The impact of biofuels was also a key topic, and represents what opening speaker Dr. Mike Boehlje of Purdue University called a “huge logistics and transportation challenge” for the industry.
Boehlje talked of the “phenomenal growth” in the ethanol industry, but also noted numerous growing pains, including narrow margins; a slowdown in the completion of new plants after last year’s surge in development; limits in corn-based ethanol production; and the possibility that supply may exceed demand. On the farm level, Boehlje said growers will spend 18-20 percent more next year for fertilizer and crop protection chemicals, and the availability of water, not land, may be the biggest issue facing agriculture in the future.
Mike Etzel of Cargill offered a more detailed look at the biofuels landscape, noting that the ethanol production industry is bearish due to increasing plant building costs, grain prices, and depressed ethanol prices. He said biofuels legislation is uncertain, noting that subsidies will remain, but the level is changing. Cellulosic production is nearly double the cost of grain-based production, he said, and as a result it is still 5-7 years in the future and will require an expansion of the ethanol industry beyond 14-15 billion gallons to be commercially viable.
Harry Vroomen of The Fertilizer Institute detailed the nutrient supply and pricing landscape, starting his presentation by asking, “What the heck is going on?” Vroomen noted that the index of fertilizer prices paid by farmers more than doubled from January 2000 to August 2007, which doesn’t even take into account the phenomenal run-up in price for all three major nutrients since August of this year.
“How did we get here?” Vroomen asked. The answer, he said, can be found in higher energy and feedstock prices worldwide; a 40 percent drop in U.S. nitrogen production capacity due to higher domestic natural gas prices; an 83 percent increase in U.S. nitrogen imports to replace that drop in supply; a 14 percent rise in world nutrient demand from 2001 to 2006; and an estimated 8-9 percent rise in U.S. nutrient demand in FY2006/07 due to this year’s 93.6 million acre corn crop and the ethanol demand driving that acreage increase. Other factors feeding the pricing/supply picture include significantly increased shipping and distribution costs and the falling value of the U.S. dollar, Vroomen said.
Vroomen said U.S. nutrient demand will fall marginally in FY2007/08 as some acreage planted to corn in 2007 shifts back to soybeans and wheat in 2008. He added, however, that high farm income and crop prices should support fertilizer application rates, even with the higher input costs. From 2007 to 2011, Vroomen said 50 new urea plants could come online globally, paralleled by a significant increase in global NH3 capacity. DAP capacity is expected to increase in exporting countries, and some expansion of potash capacity is expected in North America and globally.
While fertilizer production capacity is expanding worldwide in response to the higher prices, world demand also continues to expand at a rapid pace, Vroomen said. As a result, the market for all nutrients could remain tight until 2009, while the market for phosphates, and especially potash, could remain tight for a more expanded period.
Dr. Ken Cassman of the University of Nebraska talked about regional efforts to increase crop yields in response to increased global demand and the rapid expansion of the biofuels industry. He said these challenges can be met by an “ecological intensification” approach to crop management, striving for yields that are 85-90 percent of crop genetic yield potential and a 70-80 percent N fertilizer uptake efficiency while minimizing negative environmental impacts through rigorous soil testing, site-specific or zone nutrient management, fertigation and new irrigation approaches, and the use of controlled-release fertilizer formulations.
Shorty Wittington of Grammer Industries Inc. discussed transportation logistics, noting that storage and transportation will be key issues for the next 3-5 years. Trucking and all major transportation in the ag sector will remain tight due to other demands, he said, and improved equipment and the size of operations will continue to put stress on the demand and timing of product consumption, application, and availability.
The conference’s afternoon session on Dec. 6 also included a discussion on risk management tools by a panel of experts, including Bruce Vernon of Mid-Kansas Coop, Dan Frick of Frick Services, Jeff Holmes of Holmes Agro Ltd., and Ryan Sherwood of FCStone. This included an in-depth look at the use of Swaps as a tool for price risk management, supply strategies depending on location and time of year, managing payment terms, and the importance of diversification.
ARA also presented its ARA Retailer of the Year Award and Legislator of the Year Award at the conference, the first to Landmark Services Cooperative of Wisconsin, and the second to Rep. Marion Berry (D-Ark.)