Farmers are facing high commodity prices, high input costs and high stakes this spring as planting season approaches.
In 2021, ag retailers and the fertilizer industry warned about price increases and possible shortages for fertilizer and herbicides this spring. Since Russia invaded Ukraine in February, fertilizer prices, exports, commodity prices and the energy industry have all seen impacts on the global scale. That’s on top of previous pandemic issues, trade disruption and weather impacts.
All of that market volatility means it’s hard to predict what, exactly, this season holds for farmers.
“The stakes of the game have just all elevated,” said Tadd Nicholson, executive director for the Ohio Corn and Wheat Growers Association.
Challenges for fertilizer last fall already included higher prices for inputs like natural gas, damage from storms, shutdowns for maintenance at facilities in 2021 — that were put off from 2020, due to the pandemic, trade disruptions and more demand due to higher crop prices, said Jason Troendle, director of market intelligence and research with The Fertilizer Institute.
Now, the war is adding more pressure to fertilizer markets.
“The industry was talking about this last fall,” said Chris Henney, president and chief executive officer of the Ohio AgriBusiness Association. “I held out some hope that things would get better, but instead of things getting better, we ended up with a war in Europe and things got worse.”
Russia is a major player in the global fertilizer market, exporting 14% of the global Urea market, 10% of the phosphate market and 21% of the potash market. The U.S. has strong domestic production for nitrogen, Troendle said, but relies more on other countries for phosphate and potash.
“A farmer in Ohio or Pennsylvania is going to have to pay the global price, because it is a global commodity,” Troendle said.
The U.S. currently has sanctions against both Russia and Belarus, another major exporter of potash. The two countries together account for 42% of the global market, and about 12-13% of U.S. potash imports, which means the U.S. may have to find other sources to import from.
Natural gas prices have gone up during the war and also impact nitrogen fertilizer prices, since it is a feedstock for nitrogen fertilizers.
Henney said some ag retailers have told him they have part of their fertilizer supply for the spring already on-hand, but are waiting to see for sure whether the rest of what they need will come through.
“There’s some things that are out of our control, but there are other things the industry can do and are doing,” Henney said.
He said some fertilizer companies are ramping up production in response to these challenges — for example, Nutrien, a Canada-based country, recently said it would up its potash production by about a million metric tons to 15 million metric tons in 2022. But there’s a limit to how much and how quickly companies can increase production.
Pat Knouff, president of the Ohio Soybean Association’s board of trustees and soybean, corn and wheat farmer in Shelby County, said while fertilizer is a concern, he hasn’t run into an issue so far. He pre-paid for the fertilizer he needs, and his supplier is saying he will get that fertilizer. Right now, he’s more concerned about herbicides.
Shortages of glyphosate and glufosinate are continuing to be a challenge, though that’s due to other supply chain issues, rather than the war. Knouff has already made changes to his weed management plans for the year, hoping to use those two products only where he has to, and use other herbicides when he can.
“I believe that a good residual program … is probably going to be the key to having weed control this year,” he added.
Most farmers have done their best to lock in prices on the products they need, he said. Now, it’s just a matter of trying to make sure those products get to them.
Diesel fuel, which farmers rely on during the planting season, has also gone up in price, Nicholson said. Farmers who were able to buy their fuel already at a lower rate will be in good shape. Farmers who weren’t able to will be “feeling that pinch, just like everything else,” he added.
Higher natural gas prices have implications for fertilizer costs, but could also create opportunities in the ethanol market, Nicholson said.
“Right now is a major opportunity for us to be able to highlight ethanol as a relief valve for consumers struggling with high prices,” he said.
Knouff said biofuels could help the U.S. be less dependent on other countries for oil. If the U.S. government takes actions like increasing the renewable fuel standard, “we could see a boom in the biofuels markets, which could help us as farmers with prices.”
The war has driven home how global markets are now, Nicholson said. One big question is whether Ukraine, a major agricultural producer, will be able to plant and tend to crops enough to get a typical harvest, as Russia continues its invasion. Ukraine and Russia are both major wheat suppliers.
It’s hard to say what the long-term impact on exports will be. And, Knouff said, it’s hard to know how global politics will play out.
“The world supply situation will be affected by this war,” Nicholson said. “What that effect is, we just don’t know yet.”
While input costs are high, commodity crop prices are also high right now. That means even with higher variable costs, returns for corn, soybeans and wheat don’t look too bad currently, said Barry Ward, director of Ohio State University Extension’s Income Tax School Program and part of the Farm Office team.
Those crop prices have trended upwards fairly consistently since fall of 2020. While that contributes to higher input costs, it’s a complicated relationship, and it’s hard to say how much crop prices are driving costs.
“It’s difficult to pinpoint what the correlation is between higher crop prices and higher input costs,” Ward told Farm and Dairy. “There certainly is something there.”
In a March 16 Farm Office Live webinar, Ward said variable costs for farmers increased by 46% for corn, 35% for soybeans and 49% for wheat, compared to 2021. But those crop budget numbers are still changing almost every day.
“There will be significant challenges this spring, but I see the crop getting in the ground, and a harvest this fall,” Henney said.
Nicholson added volatile times like this mean it’s important for farmers to have risk management tools available. And while it’s still early in 2022, Ward said it’s not too early to start thinking about 2023. Some farmers are already considering looking at pricing for next year’s inputs.
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