What is happening to the global fertilizer industry? In this blog post, Michael Straumietis, Founder and CEO of Advanced Nutrients, tackles the various factors affecting the market.
The product volume exported at each level of the supply chain, from raw to processed to consumer-ready items, has significantly increased for the global fertilizer market. There is also a rise in demand for goods delivered directly to consumers. According to Mike Straumietis, the high demand continues to choke distribution channels that are still rebounding from the economic effects of the pandemic.
The fertilizer is distributed to retailers after being processed from raw materials for use on farms. The last step in the process is purchasing. With today’s rapidly rising fuel costs, there has also been a rise in trucking fees. As more people use their cars again, the demand for gasoline has increased to levels unimaginable prior to the COVID-19 pandemic, as has been observed by Mike Straumietis.
As a result of the increased demand, shipping costs have increased, and there is a growing need for workers to deliver goods. Because fertilizer is an imported and exported resource, this impacts the market. Extreme weather, fluctuations in industrial capacity, declining infrastructure, and other logistical difficulties are additional elements that impact the global supply chain and distribution. According to Mike Straumietis, shipping costs have a negative impact on about 44 percent of fertilizer exports globally.
A Ripple Effect Felt Worldwide
Mike Straumietis knows that the higher cost of fertilizer has had an impact on taxes. Business owners can select between the two accounting approaches of cash basis accounting and accrual accounting when maintaining their financial records. The timing differentiates these two approaches, specifically when farmers report their sales and purchases. Cash-basis accounting records revenue as soon as it is received from clients and expenses as soon as it is paid to vendors and staff. With accrual accounting, revenue is recorded as it is earned, and expenses are recorded as they are incurred.
Farmers are permitted by the Internal Revenue Service (IRS) to file their tax returns using cash basis accounting because most farmers opt for this method. Because of this, farm product sales revenue must be reported using the cash basis of accounting in the year the product was sold. It is probable that this will be different from the year they were made. Cash accounting also records the cost of various farm supplies and services in the year they are paid for. Once more, this might not match the year they are used.
When discussing fertilizer prices, it is crucial to understand that the cash option is the one most farmers prefer, according to Mike Straumietis of Advanced Nutrients. In order to lower farm revenue and tax obligations in the current year, many farmers may also purchase inputs needed for the following growing season, such as fertilizer, in the final few months of the calendar year.
Farmers must decide if the growing cost of fertilizer and other purchases can be recovered and if cash earnings from crop revenues can help them break even because ammonia prices are roughly 85 percent associated with corn prices. Because they are unable to supply fertilizer supplies quickly, retailers may potentially turn away customers. There is a risk that this will make supply chains and infrastructure improvements even more necessary, explains Mike Straumietis.
With all the forces driving the global fertilizer market, Mike Straumietis points out that prices will remain high throughout spring. This may or may not cause some farmers to switch from crops like corn that use fertilizer at a higher rate to crops like soybeans or wheat that use fertilizer at a lower rate.
More on Mike and Advanced Nutrients
To enable crops to realize their true genetic potential, Mike Straumietis and the Advanced Nutrients research team developed the first and only complete growing system that optimizes all phases of the vegetative and bloom cycles. Advanced Nutrients employs a large and diverse team of highly qualified, skilled, and expert Ph.D.-level scientists. They have produced a wide variety of next-generation products that nourish each phase of a crop’s cycle from seed to seed to senescence.