The future of global trade for American agriculture continues to paint a murky picture. As of now, the trade outlook for U.S. ag exports in 2022 remains strong. Higher grain prices have yet to affect demand, and current yields are suggesting that the stock-to-use ratios for corn, soybeans, and wheat will likely keep prices strong. While there’s been a considerable amount of attention on record-breaking ag export trade forecasts, less focus has been placed on the import side of things which could be cause for concern as farmers make production decisions heading into spring.
The U.S. relies significantly on imports of nitrogen and potash fertilizers. The rising price of natural gas, a key ingredient in ammonia used to manufacture nitrogen fertilizers, is a major factor driving up nitrogen fertilizer prices. Fertilizer producers in Europe have cut back on ammonia production in light of the dramatic natural gas prices there. China, one of the world’s largest exporters of urea, sulphate, and phosphate, is imposing restrictions on their export. China and Europe represent the two largest sources of imported fertilizer and agricultural chemicals. These developments, coupled with strong demand, are causing triple-digit growth in prices for nitrogen, ammonia, and phosphate in the U.S. The prices of glyphosate and glufosinate, herbicide compounds for weed control, are up as much as 300% in certain locations.
These shortages and price spikes are not solely a U.S. problem. Brazil is also facing escalating fertilizer prices during planting season which will likely lead to reduced corn production. Canadian authorities are urging their growers to cut back on usage. European farmers might find it more difficult to source fertilizer this spring.
Other factors affecting production costs for farmers include:
- Parts shortages and repair costs for machinery and equipment, likely exacerbated by the worker strike at John Deere.
- With the U.S. expected to be more reliant on crude oil imports in 2022, the rise in crude oil prices to the $85 per barrel range is also a cause for concern.
- Prices for propane, which is used to heat many rural homes, have nearly doubled since last year.
- Finally, farmland rents are expected to be up 10-20 percent in 2022 in many parts of the country.
Although higher costs for fertilizer and other inputs will place pressure on farm profitability in 2022, U.S. crop enterprises will likely remain profitable assuming normal yields due to a strong market. The risk is that farmers pay the high costs for fertilizer and chemicals only to see adverse shifts in the global market caused by a relatively stronger dollar or barriers to trade (particularly with China) squeeze expected profit margins. Given current conditions and high commodity prices, direct government payments are likely to be dramatically lower and crop revenue insurance does not address rising operating expenses.
A strong demand coupled with tight supply for agricultural commodities is translating into higher food prices for consumers. According to the Food and Agricultural Organization (FAO), global food prices have reached a 10-year high. High wheat and other grain prices, along with high shipping costs and delays, are particularly damaging for poorer countries.
One thing is certain—affordability and availability of inputs are both critical to ensuring our ability to compete in the global market and protecting our domestic food system. While global agriculture has its benefits, a domestic food system should be self-sustaining as well to hedge against the risk of supply bottlenecks and shortages, as seen these last couple of years.
Dr. John Penson Jr. Is the Chief Economist at AgAmerica Lending, a nationwide agricultural land lender. He has also held the title of Regents Professor and Stiles Professor in the Department of Agricultural Economics at Texas A&M University.For more opinions and ag news, go to: www.agri-pulse.com.