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Tuesday, May 30, 2023

Soaring prices squeeze farmers’ returns in North American grain belt

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Bryan Perkins, whose household has farmed a patch of the Canadian prairie for greater than a century, has by no means seen his prices rise like they’ve in latest months.

The day-to-day price of working his operation was already escalating shortly coming in to 2022 amid rampant inflation and provide chain bottlenecks: fertiliser, diesel, electrical energy and freight have been all marching greater.

“Russia-Ukraine has exacerbated the whole issue,” the grain and pig farmer stated, sitting at his kitchen desk outdoors Wainwright, a city within the western province of Alberta.

Perkins’s expertise echoes that of many farmers in North America’s farming heartlands whilst grain costs hit the best ranges in a decade. Russia’s invasion of Ukraine is threatening meals shortages in import-dependent nations, however additionally it is growing prices for growers based mostly in large agricultural exporters.

The major problem for US and Canadian farmers is the value of fertiliser. Soaring pure gasoline costs have pushed up the price of nitrogen-based fertilisers equivalent to ammonia, which jumped from about $700 a tonne in August to greater than $1,600 in May. The value of potash, wealthy in potassium, has hit data above $1,100 a tonne as sanctions curtail provides from Russia and Belarus, which collectively account for nearly 40 per cent of worldwide provide.

“We’re in uncharted territory, in terms of fertiliser costs. At the farm level, we’re really at record levels,” stated Tom Scott, vice-president for agribusiness consulting at S&P Global Commodity Insights. “Moving forward, this is going to be a challenge, especially if crop prices come down.” 

A examine by lecturers on the University of Illinois estimated rising fertiliser prices would reduce farm incomes by a couple of third between 2021 and 2022, even earlier than the invasion of Ukraine started. In the US, the Biden administration has stated it’s going to pump funds into home fertiliser manufacturing in an effort to chop prices, however any outcomes will take time.

High fertiliser costs have triggered a shift to crops that require much less of it: US farmers supposed to plant 4 per cent fewer acres with corn this spring, whereas boosting land for soyabeans, based on the US Department of Agriculture.

Bert Frost, vice-president of gross sales at CF Industries, a US-based fertiliser producer, final month stated it will be a “mug’s game” for farmers to keep away from making use of fertiliser to save lots of on prices, on condition that these have been already mirrored in greater crop costs.

“If you are not applying maximum nutrients, you’re just not that intelligent, because it’s $8 corn, it’s $12 wheat, it’s $16 soyabeans,” he advised an business convention hosted by BMO Capital Markets. “Every crop that’s out there that needs nitrogen or any nutrient is highly valued, and highly valued because it’s highly needed.” 

The diesel gas that powers tractors, harvesters and grain vehicles has additionally soared, with US costs on the pump rising 70 per cent previously 12 months to file ranges of greater than $5.50 a gallon.

Line chart of On-highway* diesel costs ($/gallon) showing US diesel prices are at record levels

Perkins, in Alberta, stated native farmers had been paying roughly C$16 for a litre of glyphosate, a herbicide typically used with canola, corn and soyabeans. Last 12 months the weed killer, typically recognized by the model title Roundup, was promoting for simply over C$6 a litre.

In central Illinois — one of many highest-yielding corn and soyabean areas on the earth — pesticide prices are anticipated to be up by 1 / 4 this 12 months versus 2021, based on a University of Illinois examine. Machinery restore prices are additionally set to leap about 20 per cent due to provide chain constraints.

The value stress comes because the US Federal Reserve raises rates of interest, pushing up price of borrowing for tools and crop inputs.

“Drought, increased fertiliser, chemical and fuel costs and rising interest rates are the primary concerns in our area,” one south-west Nebraska agricultural banker advised Federal Reserve Bank of Kansas City researchers in a surveyed printed final month.

Consumers are unlikely to instantly really feel the pinch from rising manufacturing prices alone. The bulk of the rise in meals costs is pushed by prices past the farm gate, together with transport and packaging, analysts stated. Farmers obtained 16 cents for each greenback spent on meals in 2020, based on the USDA.

Elevated crop costs imply many farmers will have the ability to climate greater prices for now. Early estimates recommend that ought to crop costs stay excessive, returns for corn and soy will probably be down on final 12 months however stay effectively above earlier years.

Line chart of Prices Paid Index (2011 = 100) showing Farmers’ costs are soaring

“If those [crop] prices stay up there farmers will absorb those prices and be profitable,” stated Gary Schnitkey, a professor on the University of Illinois at Urbana-Champaign. “But the minute they come down . . . we’re looking at very large losses. The returns are still there, but those risks are high.”

In components of the creating world, nonetheless, the state of affairs is way more dire. High prices may power some South American and African farmers to depart crops unfertilised, or abandon planting altogether.

“The US farmer is not going to stop growing crops because of high fertiliser prices,” the S&P’s Scott stated. “But there are other parts of the world where it may be difficult to put in a crop.”

Source: www.ft.com

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