Fertilizer Shortage May Impact 2022 Crop Mix for Many Farmers
Supply Chain Crisis Hits Broad-based Agriculture Needs
The cost of inputs has risen steadily over the past year, with fertilizer doubling in price since January. Now, farmers are finding they can’t lock in fertilizer prices for next year – if they can get the supply at all – because of a nationwide shortage. The economic impact of such a shortage is immediate and significant, since this is the season when farmers attempt to guarantee a profit for the coming year by locking in prices of fertilizer, seed, diesel and other inputs.
Specific fertilizers that are in the shortest supply include weed killers glyphosate, glufosinate and atrazine, all used widely on crops throughout North America.
The fertilizer shortage appears to be caused by a confluence of events, including worldwide shortages of the raw materials used to manufacture them, logistical and supply chain disruptions stemming from the COVID-19 pandemic, and Hurricane Ida, which slammed into Louisiana in late August and closed Bayer CropScience’s production facility, which supplies most of North America’s glyphosate. The facility re-opened in late October after five weeks offline.
The situation is further complicated by the fact that more than 35% of the chemical fertilizer used on U.S. crops is imported from China, which may be holding back some exports to support its own agricultural output and is caught up in logistical and supply chain bottlenecks. Of particular concern to U.S. farmers is that it doesn’t appear that domestic fertilizer manufacturers can ramp up quickly enough to take up the slack.
Supply Chain Crisis
Supply chain and logistics problems have plagued the U.S. since the start of the COVID-19 pandemic and have reached a critical stage in the agriculture sector that may force some farmers to change their crop mix in 2022. The crisis is broad-based, keeping steel and computer chips – both of which are used in manufacturing new farm equipment – from reaching the market. Farmers who have used equipment for sale today can, in some cases, get as much for it as they paid when it was new.
For some in the agriculture industry, the fertilizer shortage presents an opportunity as crop farmers look for alternatives to chemical fertilizers.
One beef producer I know recently pointed to a pile of manure on his feedlot and said, “That’s my gold pile there.” But there’s not enough manure in the entire Midwest to do the job that chemical fertilizers do for crop farmers, and smart farmers are considering what they can do to switch up their crop mix in 2022 to hedge against this unprecedented fertilizer shortage.
Shifting Crop Mix
The impact will be particularly pronounced on crops – like corn – that require heavier fertilizer use. Many are looking at putting more acres in soybeans, milo and wheat, all of which require less fertilizer than corn. But shifting crops will likely have ripple effects across the broad food economy, since corn syrup is a key ingredient in many packaged foods and is a mainstay feed for beef cattle.
For farmers looking to plan for next year’s crops, the levels of uncertainty and price risk are at the highest levels ever. But there are some strategies that should help manage the risk:
- Before planting, make sure you can secure all the inputs you need. Everyone wants to grow corn because corn prices are extremely strong this year at $5 to $7 a bushel. Even if you can secure the fertilizer supply, if you can’t lock in a price and it goes up another 50% during growing season, you’ll be obliged to pay a bill that may wipe out your entire profit.
- Seek advice from a crop consultant before planning your crop mix.
- Be realistic. Some people think the supply chain problems are temporary and will be a thing of the past within a couple of months. But there is no data to support that, and it’s possible this fertilizer shortage could stretch through the end of next growing season.
- Stay informed and keep in touch with agriculture industry news coverage and reports from farm organizations.
We will keep you informed as the situation with shortages and price fluctuations unfolds. Meanwhile, if you would like a consultation about how you can effectively manage your farm finances amid the current uncertainty, contact your Adams Brown advisor.