Russia/Ukraine, Fertilizer Price Hikes and the Latest USDA 2022 Acres and Yield Forecasts

Update for February 25th, 2022

Markets around the world are reacting to the Russian invasion of Ukraine. This is causing great concern and uncertainty regarding exports out of the Black Sea region. Ports affected handle massive quantities of grain for export and already shipping companies are refusing to enter the region. The France based CMA CGM shipping company has suspended all vessel calls to Ukraine effective February 24th until further notice. Maersk has also canceled all ship calls and has closed their office location in Ukraine. Cargill reported that one of their ocean-going vessels located in the Black Sea was hit by a shell on Thursday, the ship was damaged but remained seaworthy, the crew was unharmed.

The world-wide agriculture commodity trader Bunge Ltd announced that the company’s offices in Ukraine have been closed and all operations at the port of Mykolaiv are suspended. The ADM company also reports they have halted all activity in their facilities located in Ukraine including the terminal in Odessa.

Shipping in the Azov Sea is also being restricted by Russia so grain shipments in this region will also be disrupted as a result. The suspension of all exports out of the Black Sea region as well as the Azov Sea could force buyers around the globe to buy supplies of corn and wheat from the U.S. and elsewhere if the conflict drags on very long.

So not only is the timing of this invasion stalling the exports of grain out of the region it may also impact the upcoming planting season. Spring planting in Ukraine typically begins within the next two to three weeks but fears are that the Russian invasion could cause considerable shortages of the fuel and fertilizers needed. Banks are limiting loans for commodity movement and grain traders are finding it difficult to secure the financing of commodities stored in bins around the country of Ukraine.

Not only have grain exports been cut off, the shipments of all goods produced have halted as well. The Ukrainian government has also ordered the iron ore company Ferrexpo Plc to stop all rail transportation in the country which means that even once shipping is able to resume there will be very little iron ore supply available at the ports to load. ArcelorMittal, an enormous steel producer in Ukraine says they have reduced production at their facilities to a “technical minimum” and all work within the underground iron ore mines has come to a stop.

Last year, before any of this was even on the radar screen, fertilizer prices in the U.S. skyrocketed and most continue to climb. According to DTN:

· MAP is up 44% over prices a year ago

· DAP is 46% higher

· 10-34-0 has increased by 60% from 2021

· Urea is 95% higher

· Potash is up by 102%

· UAN32 has risen by 144%

· UAN28 is now 146% more expensive

· Anhydrous has almost doubled in price and is now 181% higher than a year ago

Now remember that the largest exporter of nitrogenous fertilizer in the world is Russia… They seem to have aligned themselves with China and together they could cause some major problems for the U.S. and others. Analysts worry that the Russian invasion into Ukraine may encourage China to now make a move to take over Taiwan. The country of Taiwan supplies over 60% of the all the semi-conductor chips produced in the world. These chips are used in things like cell phones, cars, medical devices, farm equipment and basically anything that involves tech. One-third of the palladium and the majority of the neon used to make these chips comes from Ukraine and Russia. If China were to take over control of Taiwan, Russia and China together would will control a massive portion of the materials and facilities needed to make the necessary components for use in vital tech products. These are enormous ramifications that go way beyond agriculture!

The typical corn : soybean ratio of 2.4 to 1 favors the planting of soybean acres vs corn. Currently the ration sits near 2.43 to 1, so that fact along with the high price of corn input costs tilts production towards soybeans.

The USDA recently held their annual Ag Forum and have announced their first forecast for 2022 US. corn and soybean acres. Current USDA estimates are for 92 million new-crop planted corn acres this season vs 93.4 million planted last year. New crop soybean planted acres are estimated at 88 million vs 87.2 million acres in 2021, still lower than the +89 million acres many had anticipated. The USDA will soon begin the process of surveying producers regarding their planting intentions for this spring. The much more accurate results from these surveys will be released at the end of March in the Planting Intentions Report.

While the USDA’s corn acres estimate was lower than a year ago, current yield projections were raised to the trend-line average of 181.0 bushels per acre and soybean yields were forecast at 51.5 bushels per acre. Without a major shift in weather models for summer 2022 the extremely dry conditions currently found in many key growing areas these new yield estimates may be a bit generous.

Washington’s definition of a “farm” is “any place from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold during the year” (this figure also includes government payments as part of the total). Many argue that politicians place too much importance on these small farms because they make up a very low percentage of total U.S. production.

In 2021 the total number of farms in the U.S. was estimated at 2,012,050, total farm land acres fell by 1,300,000 to 895,300,000. Of these acres 30.1% had total sales of less than $100,000 while 40.9% of these farms produced sales of $500,000 or more.

Some of the largest losses of farms were found in:

· Ohio 900 farms lost

· Virginia 800 less farms

· Nebraska is down 700

· California lost 600

· Alabama, Michigan and West Virginia each lost 500 farms

· Indiana saw a loss of 400 farms

· Kentucky is down 400 farms

· Wisconsin 300 farms are gone.

The 6-to-10-day forecast shows a warm-up for most of the country. Unfortunately, the 8-to-14-day outlook shows a return of colder than normal temps across the northwestern U.S. Beyond this time-frame models indicate temps may remain on the colder side into April but a warm up is expected for the second week of April leading into Easter.