A personal report from the farming front lines of soaring energy and fertilizer costs, and the uncertainties of the war in Ukraine on this year’s domestic crops.
Climate & Capital’s finance editor is also a fourth-generation farm operator who, along with other family members, produces cotton, soybeans and corn through a family farm business in southeast Missouri. This is his personal report from the farming front lines.
It’s 5,620 miles from southeast Missouri to Odessa, but we and our farming neighbors find ourselves on the front lines of the Russian war on Ukraine. The globalization of American agriculture over the past 50 years means what is happening in Kyiv today directly impacts our planting season in middle America. As it is for millions of other farmers across America’s agricultural heartland, there is high anxiety over the annual spring planting ritual.
In a normal year, middle American farmers optimistically borrow billions of dollars to plant 172 million acres of crops on some of the most productive farmlands in the world, with hopes of raising good crops at good prices. But this year, a dark cloud of deep concern is shadowing the usually bright mood among the 96% of 2,204,792 U.S. farms defined by the USDA as family-owned.
Our farming operation, in the family for over 80 years, is in “the Bootheel,” a largely agricultural region in southeastern Missouri, part of the “heartland” region that includes western Kentucky, southern Illinois and northwest Tennessee.
Sorting out an unpredictable future
As a fourth-generation family farm owner, I am actively engaged with our producer partners –– who are also family farm owners themselves –– trying to sort out a highly uncertain future for this crop year. And there is no time to waste. In the next few weeks, we will be putting seeds for corn, soybeans and cotton into the ground.
The Russian war has taken the usual uncertainty and risk of agriculture to a new level for our community. We are used to the usual “known unknowns” of variable and changing weather (spring floods, summer droughts), volatile markets and the rise and fall of crop prices. Now, we must try to predict our planting season based on the impact of war on one of the world’s great exporting “breadbasket” farming regions.
From fertilizer and seeds to diesel fuel and herbicides, family farmers are looking at unprecedented supply problems and soaring costs.
From fertilizer and seeds to diesel fuel and herbicides, family farmers are looking at unprecedented supply problems and soaring costs.
These come on top of the ongoing issues of COVID pandemic disruptions on our just-in-time supply chains. Now, when available, the prices of supplies are double, even triple the amount of previous expenses when measured against historic records.
Good crop or bad crop: It costs the same
For a commodity crop farmer who works thousands of acres of ground every spring, the expenses of growing a bad crop or a good crop are identical. Planting, fertilizing, cultivating, management of weeds and pests and harvesting costs are the same, whether for a low or high yielding crop and for a lower or higher price for the end product at market. As of this writing, prices for agricultural commodities are up some 20-30% or more. In the case of wheat, the current price has almost doubled — to around $11 a bushel, up from $6 in 2020. But any higher gross profits will be likely eaten up by the exponential rise in production costs.
The immediate concern now, on the eve of planting season, is the cost –– and even the availability –– of the primary fertilizer for corn, urea, a nitrogen-rich compound that is essential to producing a high-yielding crop.
Cost of fertilizer triples
Ahead of the 2021 corn crop, we bought urea for our one-third share of the inputs at $345 a ton. In fall 2021, the cost rose to $930 per ton — something was up. It turns out that, among other developments, fertilizer manufacturers were shutting down plants due to the skyrocketing price of the natural gas and electricity required to produce it. In one example, CF Industries, a global producer, halted operations at two of its plants in England in September 2021. The plants were eventually re-started with an injection of capital from the British government. But the canary in the fertilizer mine had sung out, loud and clear.
This year, so far, the price for urea has risen as high as $1,100 a ton. We typically buy about 100 tons annually. So our one-third of the input cost share could reach as high as $90,000 for the same amount we paid $30,000 for last year. Our producer-partners buy the other two-thirds needed for a corn crop; they face a doubled/tripled-up rise in expense also. And although prices for corn futures have recently risen from $5.50 to $6.50 a bushel –– average yield per acre is 200 bushels –– that increase will not make up for the exponentially higher costs of fertilizer.
From Russia with love: Our fertilizer
Here’s the kicker about fertilizer: about 40% of urea production comes from –– you guessed it –– Russia and Belarus. Those two countries also produce 40% of the world’s supply of potash, a potassium-based soil nutrient, another essential fertilizer. In another wartime turn, the chief executives of two Russian fertilizer companies, PhosAgro; Europe’s largest producer of phosphate-based fertilizer, and Uralchem; a major competing fertilizer company, have been named to the sanctions list. This means that their fertilizer exports will be curtailed, if not outright banned from purchase, by the U.S. and its allies.
Here’s the kicker about fertilizer: about 40% of urea production comes from Russia and Belarus.
Riptides of disruption
The riptides of disruption throughout the global agricultural sector are just beginning to threaten the economic well-being of American family farm.
In coming weeks and months, we need to worry about outright export bans, refusals to buy and/or sell commodities among traditional trading partners, stalled supply chains due to frozen shipping –– cargo going in or out of Black Sea ports is constrained at this writing –– those are just a few of the existential uncertainties we now face.
Historically, farmers’ livelihoods are as unpredictable as the weather. The recent changes in weather patterns have added new meaning to the conventional wisdom that the only certainty in farming is uncertainty. Over the past few years, throughout the Midwest and MidSouth farm belts, farmers have been dealing with torrential spring rains and extended summer droughts, as well as more frequent and more extreme weather events: tornadoes, hail and sudden temperature swings — i.e. climate change.
The consequences of war in Ukraine add an unprecedented layer of disruption in scale and scope to our concerns. Will there be a grain harvest in Ukraine, one of the world’s largest producers of wheat, while tanks and drones fight it out in farm fields? Will other Ukrainian grain crops be planted this spring? Can cargo ships load out of besieged Black Sea ports? How will sky-high energy costs for natural gas and electricity affect fertilizer production for next year? Will China continue to buy large amounts of U.S. soybeans, cotton and corn, as it has in the past, even as it allies itself with Putin’s war?
A paradigm shift in the globalization of the world’s economies
This is big. The reset to come will define new directions for American agriculture practices vis a vis international trade for generations. Meanwhile, that “faraway” conflict in Ukraine continues to hit home in the American heartland before a seed has even been planted.
