Through deep relationships formed along the value chain and the ag industry’s remarkable ability to adapt, never doubt that good things are coming out of these tough times.
We know that fertilizer prices have tripled since 2021, key herbicides like glyphosate and glufosinate are short, and farmers worldwide struggled with much higher prices and supply disruptions well before Russia invaded Ukraine on February 24.
The war has substantially elevated the risk of disruptions in the global fertilizer trade, although analysts agree that immediate impacts will not be felt in the United States.
“This year, maybe more than ever in my career, I feel a big responsibility to get off to a good start in 2022 to raise a good crop in a sustainable manner,” Jeff Tarsi, Nutrien Ag Solutions President, told CropLife at Commodity Classic 2022 in New Orleans.
“The one thing I don’t want to lose sight of this year is food security,” he says. “It is as important in 2022 to maximize production. Yield is still king — we need that production to feed the world and we can’t go into farming in a defensive way.
“Today, when dealing with a number of extraordinary supply chain problems, your middle name had better be ‘Flexible,’” Tarsi explained, adding: “Time is critical right now as we approach spring. The situations are very fluid, changing every day and sometimes every hour. We’re relying on our sticky relationships with our growers to navigate through. We have to be nimble and put other products and philosophies into play.”
Part of that flexibility to which Tarsi refers is already reflected in key decisions for this season: For the first time since 2018, American farmers will plant more soybeans than corn in response to soaring fertilizer prices.
In its annual Prospective Planting report, the USDA forecast that farmers would plant 89.5 million acres of corn in the 2022 planting season, down from 93.4 million acres last year and 2.5 million acres below the average trade estimate. Most of the corn acres went over to soybeans where the report showed 2.2 million acres more.
Andrew Spahr, Vice President, Wholesale with The Andersons Nutrient and Industrial business, notes that specialty enhanced fertilizer sales are surging as people look to stretch their nutrient impact. He points out that growers have a multi-front battle to fight as they get ready to plant their crops this year, and that they’re increasingly relying on their retail partners to help them navigate the current environment.
“We are very sympathetic to (growers’ circumstances,) and we try to work with them on any front we can to help them manage through it,” he tells CropLife. “When things are dynamic and a little scary, to be frank, that’s when we can really lean on those strong relationships that we have to help each other and work through it together to find a positive outcome.” He adds, “We’re very grateful for deep relationships that we have built with our customers. When things get tough, we find there’s a lot of trust that we can rely on to manage through those scenarios.”
Spahr has noticed customers consuming more information now than when markets were relatively calm and they would often have three or four offers on hand when considering fertilizer purchases. “When the supply side is questionable, physical ownership is always the most secure position, but at these prices it’s also extremely financially risky,” he explains.
“We’re not in a position to call the ball on what fertilizer supply may or may not do, but what we are doing is trying to work closely with people to figure out what the best position is for their operation and helping execute against that plan. The last half of this year will likely be more dynamic than this spring,” he says.
Tenuous Time For Grain
Regardless of when the war ends, its impact on global grain trade will reverberate for some time as markets continually assess real and perceived grain supply shortages and re-adjust risk premiums, according to a new report from CoBank’s Knowledge Exchange, which predicts the conflict will negatively affect global grain flows for at least two crop years, and likely longer.
A “significant tightening” in inventories for both corn and wheat is expected, says Kenneth Zuckerberg, CoBank’s Lead Grain and Farm Supply Economist. “Grain prices will remain elevated and volatile for the foreseeable future. It’s an environment that will require U.S. grain cooperatives and exporters to maintain high capital levels and excess liquidity to fund operational and risk management activities.”
Russia and Ukraine account for 14% of global wheat production and 29% of global wheat exports based on trailing five-year averages. While the two nations produce only 4% of global corn supplies, they account for 17% of corn exports. Ukraine is also the world’s largest exporter of sunflower oil, accounting for 46% of global production, according to the Observatory of Economic Complexity. The second largest producer is Russia, which exports about 23% of the world’s supply.
The war comes at a particularly tenuous time for Ukraine given its planting calendar, creating a risk for crop production and grain exports from the country, according to CoBank.
Cereal crops will be ready for harvest in June, but whether farmers in Ukraine will be able to harvest them and deliver to the market is unclear, writes Food and Agriculture Organization of the United Nations Director-General Qu Dongyu.
“Wheat is a staple food for over 35% of the world’s population, and the current conflict could result in a sudden and steep reduction in wheat exports from both Russia and Ukraine,” he explains, adding: “Countries reliant on wheat imports are likely to ramp up levels, adding further pressure on global supplies. Egypt, Turkey, Bangladesh, and Iran are the top global wheat importers, buying more than 60% of their wheat from Russia and Ukraine, and all of them have outstanding imports.”
Deputy Minister of Agriculture in Ukraine Taras Dozba, in a conversation mid-March hosted by the Center for Strategic and International Studies, discussed a recent survey of 2,500 Ukrainian farmers representing 3.2 million hectares, on their input needs for the spring season.
“They declared that they have 20% of their need of fuel and from 40% to 65% of other inputs. But without fuel, they cannot do it,” he said, adding that Ukraine’s farmers had lost about 10% of their land due to military effects. “On the positive side, Ukrainian farmers are courageous people and patriots, and they treat their business as their service for the state and service for the global community, and they honestly and consciously want to go out to fields and do what they can.”
In the near-term, at least, India, Europe, and Australia should be capable of backfilling some of the shortfalls in Ukraine wheat exports to the Middle East and North Africa. The U.S., Brazil, and Argentina will likely be able to fill the gaps in corn export demand, says CoBank’s Zuckerberg.
More Vulnerable Regions
Far more exposed to the war’s impact than the West are Latin America, Africa, and India. According to an April report from Rabobank, potash availability for soybean production might be compromised, as Belarus and Russia account for 40% of the world’s potash production and exports.
The primary destinations of fertilizers from Russia — the world’s largest exporter of the ag commodity — are Brazil (21%), China (10%), the U.S. (9%), and India (4%), according to The Fertilizer Institute.
“Consequently, Brazil’s 2023 soybean harvest might be the first crop to experience direct negative impacts from Russia’s war in Ukraine,” says the Rabobank report. “The good news is that Latin American markets don’t need fertilizer in their fields until September — which means fertilizers need to arrive at Brazilian ports in July-August and there are still three months to work out a solution,” Rabobank’s report says, adding, “A careful assessment of the 2023 cropping season, however, is necessary.”
Samuel Taylor, Rabo AgriFinance farm input analyst, told CropLife at Commodity Classic that it’s “hard to see any situation that is going to abate higher prices on the potash side or general volatility for the whole fertilizer market. I think you will see flexibility in agricultural practices by the market,” including volume reductions or employing more efficacious production methods or changing cropping dynamics.
“There is greater versatility to do this in the North American market vs. the Brazilian market,” he says. “Europe is more like North America, in that we will probably also see this kind of agronomic flex.
“Overall, there doesn’t seem to be an offramp for all of this to really change until Putin disappears,” Taylor adds.