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Russia’s Attack on Ukraine Driving Up Costs for US Farmers

March 15, 2022 by Dan McCue
Russia’s Attack on Ukraine Driving Up Costs for US Farmers

WASHINGTON — Russia’s unprovoked military assault on Ukraine is driving up the price American farmers pay for fertilizer.

One of the little known facts about American agriculture is that while American farmers feed much of the world, the United States is almost entirely dependent on foreign fertilizer to grow all that corn, wheat, soybeans and other crops.

Huge amounts of that fertilizer come from Russia and so far those imports are not subject to any of the sanctions imposed against Russia by the Biden administration.

and while prices for fertilizer tend to be volatile in the best of times, economists who follow the market closely say prices for some Russian fertilizers have clearly gone up over the past month.

For example, Russian Urea spot prices are up around 19% since the start of the conflict and Black Sea UAN, a solution of urea and ammonium nitrate in water, is up 30% since mid-February.

“But considering the war situation, it’s hard to determine the reliability of these prices,” said one of these economists, speakings on background. “Domestically, we’ve seen fertilizer spot prices rising more than 30% since the start of the conflict in Ukraine.”

To truly grasp the situation, one has to understand there are three major components to agricultural fertilizer — nitrogen, phosphate and potash, the last of which is a potassium-rich salt deposit formed from evaporated sea beds — all of which are essential to the nation’s production of crops used for food, feed, fiber and fuel.

According to the U.S. Department of Agriculture, Russia and Canada are the United States’ largest suppliers of nitrogenous fertilizer, each with a market share of about 20%. 

Other significant suppliers include Qatar, Trinidad and Tobago, Algeria, Saudi Arabia, the European Union and Oman. All have market shares of 6% or greater, collectively providing 52% of U.S. nitrogenous fertilizer imports.

Russia and Belarus supply some potash to the U.S., but Canada is the dominant supplier, providing 76% of U.S. potash imports.

Russia is not a significant supplier of phosphorus fertilizers, an Agriculture Department official said.

Taken together in dollars and cents, the numbers really add up.

In 2021, the U.S. imported $1.28 billion of fertilizer from Russia, according to the United Nations’ COMTRADE database on international trade. 

And privately compiled numbers show an even more direct connection between Russian fertilizer and America’s farming community.

The Michigan Potash and Salt Company, for instance, has reported the U.S. imports approximately 96% of the nation’s potassium fertilizer from Russia, about 1 million short tons per year.

Even before the outbreak of the war, American farmers were on something of an economic roller coaster ride thanks in part to the rising price of fertilizer. After enjoying something of a windfall thanks to rising crop prices last year, a spike in the price of fertilizer and other farming necessities like weed-killing chemicals and labor, hit just ahead of the 2022 planting season, according to data compiled by the USDA’s Economic Research Service.

“Some of this is directly attributable to price hikes imposed by Russian President Vladimir Putin,” Agriculture Department officials say.

Other factors include a limited supply of the relevant minerals and high energy costs, high global demand, agricultural commodity prices and lack of competition in the fertilizer industry.

Data Source: https://www.ers.usda.gov/data-products/fertilizer-use-and-price.aspx, https://www.ers.usda.gov/data-products/fertilizer-use-and-price.aspx

To address the situation, the USDA this week announced it will make $250 million available through a new grant program this summer to “support independent, innovative and sustainable American fertilizer production to supply American farmers.”

USDA will use funds from the Commodity Credit Corporation set aside in September for market disruptions to develop a grant program that provides “gap” financing to bring new, independent domestic production capacity on-line-similar to the recently announced meat and poultry grants that are designed to promote competition and resilience in that sector.

The new program will support fertilizer production that is independent of the current group of dominant fertilizer suppliers; produced in the U.S. by domestic companies; sustainable in terms of reducing greenhouse gas emissions and being made with the aid of renewable energy resources; and farm focused.

Details on the application process will be announced in the summer of 2022, with the first awards expected before the end of the year.

“Putin’s brutal war against Ukraine is driving up the costs of inputs like fertilizer used by American farmers. That’s why the Biden-Harris administration has been focused on creating options for farmers to manage fertilizer costs,” said Allan Rodriguez, deputy press secretary at USDA, in an email to The Well News.

We are accelerating those efforts and efforts to shift to domestic production. This new program is crucial to these efforts and will support independent, innovative and sustainable American fertilizer production for farmers to address recent market disruptions and reliance on imports,” he added.

In addition, Agriculture Department officials said they will launch a public inquiry seeking information regarding seeds and agricultural inputs, fertilizer and retail markets.

Though the U.S. has yet to restrict imports of fertilizer from Russia, other sanctions imposed by the U.S. and its allies are having some impact on Russian fertilizer manufacturers.

PhosAgro, one of Russia’s largest phosphate-based fertilizer producers, recently informed investors that its corporate rating had been downgraded by both Moody’s and S&P as a result of the conflict in Ukraine.

“Despite the high degree of volatility and uncertainty in markets, PhosAgro remains focused on continuing its stable operations and is committed to doing its utmost to meet its obligations while complying with all applicable laws,” the company said in a written statement.

On the same day EuroChem Group AG, another leading Russian fertilizer producer, announced Andrey Melnichenko has resigned his position as a non-executive director of the company’s board of directors, due to his inclusion in an EU sanctions list.

The move was undertaken, the company said in a press release, to ensure EuroChem “is able to continue providing millions of people around the world with nutrients for agriculture, helping to underpin global food security.”

A public comment period will be open for 60 days once the requests for information are published in the Federal Register, and upon which time comments can be submitted to www.regulations.gov. In the interim, the requests for information will be made available at www.ams.usda.gov/about-ams/fair-competitive/rfi.

“In the face of the Russian invasion of Ukraine, the U.S. must recognize its dependency on Russian and Belarusian potash, which is a critical fertilizer with no known substitutes,” said Ted Pagano, founder and CEO of Michigan Potash and Salt Company.

The U.S. company is currently developing a facility to harvest American potash and food-grade salt near Evart, Michigan — home to one of the highest-quality natural potash and salt deposits in the world. 

The company is currently in advanced stages of capital raising with all permits in hand while developing the necessary infrastructure to extract it safely, in an environmentally responsible and sustainable way. Full production of domestic potash from the facility is expected for 2025.

Roberto Mosheim, a research economist with the USDA’s Economic Research Service, sent The Well News a pair of charts in response to its inquiry about fertilizer prices. Those charts are reproduced above.

Mosheim went on to explain that the first chart illustrated that from roughly 2015 to 2020 prices paid by farmers for fertilizer were low relative to crop prices they received, while the second depicts the volatility of fertilizer prices in relation to market events, like the global financial crisis of 2008.

During the COVID-19 pandemic, although fertilizer prices increased rapidly, crop prices received by farmers also increased. 

“Factors affecting the market include high energy prices (natural gas is a main input in the manufacture of nitrogen-based fertilizer) and uncertainty in world energy markets that will make the supply of fertilizer more expensive,” Mosheim said.

“Affordability has substantially decreased since the end of 2020 but remained above the long-term average until July 2021, thanks to high commodity prices in the first half of the year,” he continued. “During the second half of the year, fertilizer’s affordability has continued to deteriorate, falling well below its long-term average. … And that’s because substantial disruptions in global economic forces seem to have a large impact on fertilizer prices.”

Looking beyond Ukraine, Mosheim predicted high corn prices (due to increased worldwide demand as the COVID-19 pandemic subsides) will further put pressure on the demand for fertilizer. 

As a result, “Prices for fertilizer are very likely to keep increasing in the immediate future,” he said.

Dan can be reached at dan@thewellnews.com and at https://twitter.com/DanMcCue.

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