Fertilizer Industry Update
Mid-year is a good time to step back and evaluate the state of the industry. This article will explain how things are going in the fertilizer industry, specifically. We’ll discuss raw material costs, labor shortages, and fuel prices, as well as action steps for lawn care operators to mitigate current uncertainties.
When it comes to fertilizer production, the two raw materials to watch are urea and potash. Costs of both have been on the rise over the past year, though recently they’ve started to decrease. Year-over-year, the average cost of urea is up 54%. Potash is up 110%.
These cost increases have various causes. Agricultural crop prices, specifically corn and soybeans, are a major factor, with high demand for the 2022 crops driving prices up. The end of spring planting can account for the recent decrease in costs.
Another factor is the war between Ukraine and Russia, both of which are major global exporters. Russia accounts for 14% of global urea exports and 21% of global potash exports. Likewise, Ukraine is a large wheat exporter.
Further, European natural gas costs remain high. Because natural gas is one of the main ingredients in fertilizer, overseas production has decreased.
There’s also a shortage of storage and handling materials for fertilizer, such as totes, drums, and pallets. The materials that are available have higher prices than previously.
The outlook for material costs this year is cautiously optimistic. Recent decreases will hopefully lead to stabilization through the end of 2022. As described by the factors above, however, costs will depend on various circumstances.
In addition to the cost of raw materials, the cost of labor has hurt the fertilizer industry. With the national labor shortage, job candidates have the freedom to be more selective in their search. Because fertilizer manufacturing isn’t a very glamorous job, labor shortages have had a disproportionate effect on the industry.
Along the same lines, driver shortages are leading to increasing delays. High demand for trucking also raises costs. Much like laborers, trucking companies have the freedom to be more selective about which products to transport, choosing those that make them the most money. Lastly, rising fuel prices touch every part of the supply chain to ultimately raise costs for everyone.
Knowing this information, how can lawn care operators be successful despite industry challenges?
First, communicate with your local ATS representative. They are available to help you find creative solutions, whether that means trying new products or using your current products in different ways.
Your ATS rep can also help you interpret current events to understand how they affect the industry. Another resource to check out is DTN, which provides real-time information about grain and fertilizer prices on the agricultural side. Following grain markets and pricing is always helpful for turf professionals.
The best way to “recession-proof” your business for this fall and next year is to fully participate in early order programs through ATS. By taking advantage of these programs and discounts, you’ll secure the products you need at predictable costs. Customers who maximized early order programs through ATS last fall have maintained the best margins in this volatile year.
Lastly, lawn care operators should set expectations with their customers. Use current information about the industry to explain the volatility of the market and the potential for price increases in the future. Transparency with customers will build rapport and set you apart as a trusted expert.
Monitoring the industry, communicating with your ATS representative, taking advantage of early order programs, and setting expectations with your customers will prepare you to handle whatever happens in the fertilizer industry over the second half of 2022 and beyond.