The following article is a portion of the Industry Outlook which appeared in the January/February 2010 edition of Turf News magazine. The entire article begins on page 12 of the print edition.
2010 Industry Outlook
By Lynn Grooms, managing editor of Turf News
"The recession is very likely over,” said Federal Reserve Chairman Ben Bernanke last September. Many economists have agreed. While the market in 2010 will likely show an improvement over 2009, it will still present challenges for turfgrass sod producers, their suppliers and customers.
As Chip Lain noted in this month’s TPI president’s column, new home construction in the U.S. could be up 35 percent in 2010 compared to 2009, but because new home construction was at such a low level last year, this is not as great an improvement as one might think.
The U.S. needs to see low interest rates and affordable housing prices for the housing market to improve, says David Crowe, chief economist, National Association of Home Builders (NAHB). The job sector also needs to improve, with the unemployment rate at over 10 percent. It takes longer for the employment rate than the GDP to recover and companies will want their financial situation on solid footing before they hire back employees, Crowe adds.
Since 70 percent of new golf courses are tied to real estate, the market for turfgrass sod sales to golf courses also is expected to be flat. The National Golf Foundation projects that just 55 18-hole golf courses will open in the U.S. in 2010, the same number as 2009. The market for golf course construction looks much better in the Pacific Rim, says Jim Kass, director of member research and communications, National Golf Foundation
Perspectives from Florida and Texas
Florida is among the top turfgrass-sod producing states in the U.S, but like the rest of the country it saw a sales decline in 2009 due to the significant drop in residential and commercial construction in Florida, as well as a decline in sports, golf and other related developments. “We expect 2010 to be similar to slightly better than 2009,” says Mac Carraway, SMR Farms, Bradenton, FL.
“We have seen signs of diminishing existing-home inventories, which is encouraging. There has also been an uptick in sales of new home sites, homes and condos,” Carraway explains. “We are also seeing the benefits of some infrastructure spending (e.g. roads, parks, etc.). These activities could certainly signal an improvement in turf sales, but there will be a lagging effect as new construction will be months away from landscaping.”
Texas, another top turfgrass-producing state, saw turfgrass sod sales fall about 35 percent from 2008 to 2009, due to the economic slowdown and the decline in new home construction, says John Cosper, executive director, Turfgrass Producers of Texas.
The Texas A&M Real Estate Center suggests that the state’s housing market has bottomed out and that an improvement will follow in 2010. But, builders are also having difficulties getting financing as a result of bankers having suffered from bad loans over the last year, Cosper reports. “We’ve heard that landscapers who already paid turfgrass sod growers are now having trouble getting paid from builders.” Accessibility to credit continues to be a problem in the U.S.
Businesses may be helped by a law, however, that would allow them to use an operating loss in tax year 2009 to offset taxes they have already paid (up to five years ago). NAHB’s Crowe points out that home builders were profitable five years ago so this would act as a cash injection.
“I do not see any clear indication that credit availability is having a favorable effect on the [turfgrass sod] industry,” Florida’s Carraway says. “On the contrary, I still see signs that the industry is experiencing slow movement, extreme levels of price competition and lost profit margins.”
Fuel and fertilizer costs have had an adverse impact on turfgrass producers’ profitability. “While these costs have moderated somewhat in the latter part of 2009, the earlier higher costs were already built in to our inventory costs,” Carraway says. “Taken together with reduced prices from intense price competition, margins have been thin at best.
“To some extent, we are all chasing the same customers which results in competitive struggles that have adversely affected the market,” Carraway continues. “Our principal efforts have been to make every effort to control costs without giving up quality. That’s very hard to do. We have achieved that to some extent by letting some fields receive minimum caretaking. That takes them out of inventory available for sale, but they can be (and have been) awakened if and when demand has returned.”
Some of Florida’s turfgrass producers have gone out of business due to the economy, and acreages have been reduced. In the good times, quite a few acres of new turf were planted, including acreages planted by entities that had never been in the turf business before, Carraway says, adding that quality suffered in general. “When customers started getting more scarce, many of these producers, among others, let quality slip further and dumped grass into the market at low prices, just to generate some cash flow. Consumers may have felt they were getting a good deal, but we have seen a lot of turf failures and marginal turf quality. I suppose there was a sense that turf would sell itself for a while, and that is certainly not the case for the foreseeable future.”
Cosper also has seen some Texas producers go out of business due to the economy. Some have either sold to other producers or were not “big” into sod in the first place, Cosper says. Some have switched to row crops (such as soybeans, corn or sorghum) or have leased land. Some producers have talked about growing grain for a year or two and returning to sod when the market rebounds.
Texas producers were hit with a double-whammy in 2009, between the economy and adverse weather. The Dallas area, as well as the Red River and Texarkana areas received abnormally high rainfall. This hampered turfgrass producers from harvest and customers from installing sod.
The state’s more southerly areas experienced severe drought and wells went dry. Some 3,500 acres of turfgrass are irrigated from the Colorado River, but producers will not know until first part of 2010 whether they will have enough water for irrigation, Cosper reports.
For the business outlook in Australia and the U.K., as well as legislative issues affecting the turfgrass industry, please read the article in the print edition of Turf News magazine.
