US agri-input market: High inventory levels for wholesalers/importers; Distributors focus on reducing working capital

Global Agri-Input Distribution Market Observation

Editror’s note: The interview column of ″Global Agri-Input Distribution Market Observation″ was firstly published in 2023 Market Insight magazine. The interviews covered different types of markets including developed economies and emerging ones.

In this column, we are aiming to gain an in-depth understanding of the current development trend of the global agricultural input distribution market and analyze its characteristics of different markets, providing reference for industry participants.

US agri-input market: High inventory levels for wholesalers/importers; Distributors focus on reducing working capital

The US agricultural input distribution market is a highly concentrated one, with several large distributors holding most of the market share. In this feature, Dean Hendrickson, VP Marketing & Business Development for Crop Protection and Seed at CHS, a leading US distributor, shared the latest situation of the US agricultural input distribution market in 2022 and 2023. After supply constraints in 2022, high inventory levels in 2023 brought sales challenges to distributors, and the market may still need one year to stabilize, but industry participants remain optimistic about 2024.

• Product supply and supply lines greatly improved in 2023

• Inventories decreased for retailers and growers, increased for wholesalers and importers versus last year

• Sales declined for distributors

• US biologicals market growing slower than global markets, faster growth in specialty crops and x-Midwest

• Distributors focus on reducing working capital, consolidating customer relationships and strengthening the breadth of portfolio

 Dean Hendrickson

VP Marketing & Business Develop CP/Seed, CHS

Please briefly introduce the development history and business of CHS, as well as its market position.

CHS Inc. (CHS) has roots spanning nine decades, but was officially founded when its parent companies, Cenex and Harvest States, united in 1998. CHS history began in 1929 with the formation of North Pacific Grain Growers Inc., a regional cooperative with 60 affiliated local cooperatives. Cenex, originally Farmers Union Central Exchange, was founded in 1931.

CHS is a leading global agribusiness owned by farmers, ranchers and cooperatives across the United States. Diversified in energy, agronomy, grains and foods, CHS is committed to creating connections to empower agriculture, helping its farmer-owners, customers and other stakeholders grow their businesses through its domestic and global operations.

CHS supplies energy, crop nutrients, seed, crop protection products, grain marketing services, production and agricultural services, animal nutrition products, foods and food ingredients, and risk management services. The company also operates petroleum refineries and pipelines and manufactures, markets and distributes Cenex® brand refined fuels, lubricants, propane and renewable energy products.

From 2022 to 2023 H1, what is the overall situation of the US agri-input distribution market? What are the key influencing factors on CHS’ performance?

Overall, the market in 2023 differed markedly from 2022 as product supply and supply lines greatly improved.

In 2022, due to supply constraints and allocations, the market focused on obtaining product to ensure supply. This often led to ordering from multiple distributors, a practice growers seemed to follow too. This resulted in higher ending inventories, primarily at the retail level.

In 2023, purchasing decisions were much later across all levels. Coupled with higher retail inventories, this led to poorer sales performance for many companies in 2023. Finally, the significant devaluation of glyphosate and glufosinate had a significant impact on all companies involved with these active ingredients.

At CHS, we had record crop protection business performance in 2022. We believe we outperformed the market at both retail and wholesale in 2023, mainly attributable to our customer relationships and breadth of portfolio.

What is the current inventory situation in the US market? What challenges do companies face? How does CHS make procurement strategies and improve operations?

Current US inventories vary greatly by channel. Surplus inventories decreased at retail and grower levels but increased at wholesale and importer levels versus last year. Thus, total inventories are likely slightly higher than 2022. Our belief is it will likely take another year for the market to stabilize.

In 2022, due to supply constraints, most companies had record sales and profitability. With 2023 changes, sales were lower and most companies faced inventory challenges. The 2024 focus will be on supply chain efficiencies and managing working capital. 

Internally, we want to ensure ample inventory to meet customer needs at retail and grower levels. However, due to high interest rates and current inventory levels, we believe most companies will try to reduce working capital levels. At CHS we are actively addressing these challenges too, but are fairly bullish on 2024 and beyond.

How are sales models like e-commerce developing in the US? How will digitization change distribution?

Non-traditional e-commerce platforms have been present for years in the US. The industry believes some customers may be interested in them as an option. However, to date, the sales impact has been nominal but has increased market transparency.

To ensure ongoing success, most retailers continue to advance their value proposition and develop digital services for their historical customer base.

CHS is committed to innovation by investing in best-in-class technology to enhance customer experience across products and services. We aim to increase supply chain visibility, drive customer engagement and meet customers where they are through leading-edge technology.

The global biologicals market is developing very rapidly. What is the trend in the US? Does your company have relevant products or strategies?

The US biologicals market is growing but at a slower pace than outside the US, driven by lessened environmental and regulatory pressures, primarily in the Midwest.

At CHS, we have a robust proprietary portfolio and typically launch 4-8 brands annually. We currently offer biologicals in nutrient efficiency and crop enhancement sectors. Long term, we are optimistic on market potential.

lf you want to share your company story and your understanding to the market, please contact Mickey Shan at: mickey@agropages.com

This article was initially published in AgroPages' '2023 Market Insight' magazine.