For American consumers wondering who’s profiting from the run-up in food prices, it’s instructive to spend a few hours at Rob Tate’s Minnesota farm. Because he wants everyone to know that it sure isn’t him.
Tate is paying twice as much as he used to for the diesel that powers his equipment. And the upsurge in fertilizer cost, which accounts for roughly 25% to 30% of his expenses in an average year, is even more extreme: he’s paying as much as 242% more this year than last for key nutrients. “That’s a lot to take,” he said last week when I visited his cornfields about an hour south of Minneapolis.
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He’s not alone. In January, researchers at Texas A&M University predicted that fertilizer costs would increase as much as 80% nationally in 2022, slapping the average American feed grain operation with an additional $128,000 bill.
That will eat into profit no matter how much corn prices soar. In February, the U.S. Department of Agriculture predicted a 7.9% decline in farm income for 2022, mostly due to rising input costs. Even before Russia invaded Ukraine on Feb. 24, imperiling global supplies of key agricultural supplies, farmers were edgy. Purdue University’s most recent monthly survey of farm sentiment found 47% of surveyed farmers citing “higher input costs” — including fertilizer — as their top concern.
The concerns and costs will be passed along. On Friday, the United Nations’ Food and Agricultural Organization reported that food prices could surge as much as 22% worldwide thanks to the invasion. If they rise even a fraction of that amount, recent calls for American policy makers to do something about the problem, from imposing price controls to eliminating farmland conservation programs, will grow louder.
But in farm country, at least, it’s not policy that’s going to bring down the prices. Innovation and adaptation will, led by the very farmers now struggling with unexpected costs. “Farmers will respond to the market,” Tate said. “We will produce more.”
For farmers, like everyone else, inflation has been building since the onset of the Covid-19 pandemic two years ago. The reasons range from supply-chain disruptions that are driving up the price of equipment to surging commodities. Natural gas, which rose steadily in price during 2021, is a key ingredient for the production of fertilizers. Between July 2020 and July 2021, the price of anhydrous ammonia — a widely-used nitrogen fertilizer — increased 53%, from $487 to $746 per ton. The war in Ukraine has driven prices even higher, in part because Russia and its ally Belarus are major fertilizer exporters that now can’t supply global markets. In early March, anhydrous ammonia approached $1,500 per ton.
With spring planting just weeks away in Minnesota, it’s too late for most farmers to switch to less fertilizer-intensive crops like soybeans and wheat. Instead they’re seeking ways to fight back against the high costs they’re going to carry in 2022.
Read the full article here by Adam Minter, Advisor Perspectives.
