Fertilizer Market Is Feeling The Heat: Fertilizer Market Report

Most lawn and landscape contractors have come to understand that the raw materials that go into fertilizer and fertilizer/pesticide combination products are commodities — the price fluctuates based on use trends throughout the country and the world, as well as the quantity of product produced in any given year.

This means the formulators converting the raw materials into usable fertilizer are getting charged at relatively similar rates, unless the quantities they purchase are unusually large.

In recent years, foreign demand for fertilizer raw materials has increased the price formulators have been paying for urea. “We purchase our urea directly from the manufacturer and formulate our own fertilizer, and pricing on urea has gone up substantially in recent years,” noted Dan Wareheim, vice president of operations with Senske Lawn & Tree Care, Spokane, Wash. “In fact, it’s gone up 20 percent in the last two years.”

Similarly, formulators have also experienced higher costs due to higher demand in the world market, but the degree to which they can pass along price fluctuations to customers has been greatly reduced. The main reason for this has been an overall increase in the level and intensity of competition for the professional turf market dollar, which can be attributed to pressure from new competition and shrinking margins.

This pressure in the ranks of the country’s formulators promises to force the consolidation, purchase or failure of some of the most recognized names in the turf fertilizer business.

Most industry experts agree that while this economic phenomenon is occurring all over the country, it is especially prevalent in the heavily populated areas east of the Mississippi River.

However, most lawn contractors say they haven’t detected any hint of potential changes yet in the fertilizer marketplace. Daryle Johnson, president of All American Turf Beauty, Van Meter, Iowa, said that while he hasn’t noticed competition being any more heated than usual, he has observed that fertilizer prices in his market have been noticeably flat.

“There have been some increases in fertilizer prices, but not much,” said Johnson. “Certainly not as fast as inflation, and very little when compared to the increases in equip-ment costs. Versus three years ago, the price might be 3 to 4 percent higher now.”

DOWN ON THE FARM. More formulators are entering the turf fertilizer market because of the softening of the farm agriculture market, according to Doug Masters, sales and marketing manger of professional products at The Andersons, Maumee, Ohio. He said the flatter demand is due to decreasing farm acreage and less fertilizer use by existing farmers.

“Agricultural companies that have been servicing the (farm) agriculture business are now looking for other avenues to sell fertilizer,” said Masters.

The difference between the two markets is critical, noted Masters. The farm agriculture market is based more on volume, while the turf market is more margin oriented. Masters said the farm agriculture fertilizer manufacturers are pricing for volume, which is bringing prices and margins down to levels that make it difficult for specialty turf formulators to compete. He added that these agricultural competitors, in many cases, do not have the capability of offering the market a full line of products, and only offer low-end fertilizers.

Jim Jensen, fertilizer product manager with LESCO, Rocky River, Ohio, said the new competitors are trying to buy up market share in the professional turf and golf market, and they see the market as a growing profit center.

“The largest part of their business by far is agricultural customers,” said Jensen. “This allows them the pricing flexibility to put a great deal of pressure on companies that are significantly smaller and more specialized in the turf side of the industry.”

This has created a lot of price-based decision making on the part of fertilizer buyers in the professional turf market which, according to one industry source, is easing up but still challenges formulators and distributors across the country.

“When guys go belly to belly for the same customer base, then customer service should outweigh price,” the source noted. “The customer has to be somewhat empathetic to our position. There’s simply no way that our service is not worth a penny a pound. They need to realize that everybody needs to make money.

“Still,” he continued, “there are customers out there who will sell you out for a penny a pound, and when it comes down to it, something is going to suffer. It’s going to catch up with you.”

Masters predicted some of the smaller, more regional formulators may need to consolidate to compete against these new entities in the market, and that could occur within a couple of years. He wouldn’t speculate on which companies might be involved.

Jensen added that a significant difference between national formulators and regional turf formulators is raw buying power. “Turf formulators are purchasing hundreds of thousands of pounds, but the agriculture formulators are purchasing hundreds of millions,” he pointed out.

Each said that this trend will continue to develop as an increasingly important issue in the turf market.

GROWING FORCE. A relatively recent entry into the commercial turf market is Terra Industries Inc., Sioux City, Iowa. Bob Yarborough, Northern division professional product manager, explained that the professional turf market is an important part of the company’s plan for expansion.

“There have been many changes in the agriculture market — it’s becoming a smaller market,” he noted. “Many players in the agriculture market are looking at diversification. It makes sense for us to get involved in the turf fertilizer business, because we already have an infrastructure in place that presently services the agriculture market.”

Terra distributes agricultural products for the farm market from 420 existing facilities nationwide, giving the company the potential to access many professional turf markets very quickly, Yarborough explained. Some of these facilities have been converted to service both the farm and turf markets, while the company has also weighed the option of creating entirely new facilities to service customers within urban areas.

“We’ve brought on sales people to handle the new market and utilized our delivery forces,” he noted, “and we’ve had to improve the screening and bagging process at the facilities to meet the needs of turf professionals.”

Right now, Terra is strongest in the Midwest, but its commercial turf business is rapidly moving up the Atlantic coast from the Southeast into New England to challenge existing formulators and distributors. Yarborough explained that he did not feel comfortable comparing how the margins on fertilizer sales in his division compared with the margins generated in farm agriculture, because of the differences in value-added components. But he stressed that profitability is critical for Terra at all levels of the company. “We feel we have competitive pricing on our professional turf fertilizers, but Terra is in business to make a fair profit,” Yarborough explained. “All of the divisions are judged by their ability to contribute to the bottom line.”