DENVER, Sep 23, 2021 (GLOBE NEWSWIRE) – Farm supply co-ops and independent farm retailers enjoy strong financial returns as rising grain prices in the United States enter their second consecutive year. The prolonged period of above-average crop prices leads farmers to increase their spending on agronomic inputs and services. However, while earnings in the agricultural retail sector are expected to remain favorable over the next 12 months, emerging structural challenges will lead to increased competition and pressure on profitability in the years to come.
Major agricultural input suppliers wielding greater market power, large agricultural companies with a growing appetite for more sophisticated technologies, and competition from agricultural equipment dealers competing for these services are among the main challenges facing retailers. farmers face the long term.
Agriculture Retailer of the Future Has Opportunity to Earn More Income Through Precision Agronomy Services and Emerging Sustainability Management Programs, In addition to Traditional Farm Input Sales, New CoBank Knowledge Exchange Report Says . The report suggests that the current operating environment provides a timely opportunity for agricultural retailers to invest in new technology and position themselves for success in a rapidly changing market.
âThe traditional approach of agricultural supply cooperatives is to save above average profits when times are good, and then rigorously manage costs during the inevitable downturn, which is expected to begin in 2023,â Kenneth said. Scott Zuckerberg, chief grain and agricultural supply economist at CoBanque. âUnfortunately, this approach exposes co-ops to income volatility and declining income during down cycles, which can often last five years or more. “
Instead of relying solely on commissions and product discounts, Zuckerberg sees the way forward for agricultural supply cooperatives to expand their offerings of precision agronomy services and earn more revenue from advisory services. and software fees. âPutting technology and information to work to help farmers manage their inputs and production is where agricultural supply cooperatives excel,â he said.
Headwinds continue for agricultural retail, near term
Agri-retailers have had three consecutive profitable agronomic seasons and are generally well positioned for fall 2021 given high grain prices and a favorable farm economy. The short-term outlook remains generally positive on the basis of strong farm income, continued demand for farm inputs and favorable cash flows. By partially compensating for this, retailers may face shortages of certain protective chemicals from Asia as well as high wholesale fertilizer costs that they may not be able to pass on fully to producers. .
Growing global demand for feed grains and vegetable oil generally positions US farmers and retailers for continued success in 2022. US corn and soybean inventories remain very tight and the demand imbalance between inventories remains tight. and use is expected to persist until at least 2023.
Driving forces for change
Over the next few years, agricultural retailers will face risks that will accelerate over time. The number of US farms continues to decline due to consolidation, with family and non-family farms seeking greater economies of scale to increase their profitability. As the new class of commercial agriculture businesses hire their own agronomic staff and demand more data-intensive precision agriculture services, agricultural retailers could lose their advantage as agronomic service providers.
Recent acquisitions confirm that agricultural equipment manufacturers are stepping up their offerings of autonomous and precision farming services, which compete with traditional agronomic advice provided by agricultural retailers. The consolidation of agrochemical and seed suppliers and the maturation of disruptive agro-tech startups represent additional structural obstacles.
Getting paid properly for advice
In addition to providing agricultural customers with improved tools to grow more profitably, the business case for expanding precision agronomy services by agricultural retailers is financially compelling. Precision capabilities can help co-ops attract and retain high-value customers, while recurring service fees provide a new source of revenue. From a risk-reward perspective, Zuckerberg sees revenue-sharing partnerships with proven technology service providers as a solid opportunity for agricultural retailers.
âThe current environment is ideal for partnership structures as an opportunity for revenue sharing between retailers and suppliers,â he said. âThe opportunities associated with technologies for everything from drone imagery and remote sensing for crop scouting to precision seed recommendations and prescriptions are constantly expanding. “
Read the report, Precision Agronomy Services Will Factor Heavyly in the Future of Ag Retailing.
CoBank is a $ 158 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export finance and other financial services to agribusinesses and rural electricity, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated farm credit associations serving more than 75,000 farmers, ranchers and other rural borrowers in 23 states nationwide.
CoBank is a member of the Farm Credit System, a nationwide network of retail banks and credit associations licensed to serve the borrowing needs of agriculture, rural infrastructure, and rural communities in the United States. Based outside of Denver, Colorado, CoBank serves clients in regional banking centers across the United States and maintains an international representative office in Singapore.
CoBank Corporate Communications 800-542-8072 [email protected]
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