Global Tug-of-War Continues Between Energy and Crop Inputs

Global Tug-of-War Continues Between Energy and Crop InputsOn March 4, Jeff Cassim, marketing director for Carolina-Eastern Fertilizers, forwarded me the current Green Markets fertilizer industry newsletter. The Green Markets writers stress that apart from Ukraine’s human tragedy toll, caused by military conflict, the economic impact on energy resources, as well as farming, spans the planet. From any vantage point, the Russian invasion of Ukraine is disastrous, proving to be much more of a problematic strategic undertaking than what the Russian leader had bargained for. Thus, it’s very evident that in the absence of a cease-fire, Ukraine will suffer severe damage. At the same time, Russia will continue to be heavily sanctioned (economically penalized) by most nations.

As a result, fertilizer exports from the Black Sea could be off the market for some time. In addition, the Russian Industry and Trade Ministry recommended fertilizer producers temporarily halt exports, citing logistics problems. The Fertilizer Institute (TFI) said on March 3 that because 90% of all fertilizer used is consumed outside the U.S., the actions of Russia will impact the market for fertilizer around the world. It noted that Russia is the second largest producer of ammonia, urea and potash and the fifth largest producer of processed phosphates. It said in terms of their share of the global export market, Russia accounts for 23% of ammonia, 14% of urea and 21% of potash, as well as 10% of processed phosphate exports. As a result, the removal of Russian product from the global market will likely have a big impact on supply.

TFI noted that this is on top of the many challenges faced by the industry over the last 18 months. They also said that despite the benefits afforded by a robust U.S.-based fertilizer industry, prices for U.S. products are driven by global supply and demand factors. Likewise, the situation will also put additional stress and uncertainty on energy markets as Russia supplies approximately one-third of Europe’s natural gas, the main feedstock to produce nitrogen fertilizers. In addition, both Russia and Ukraine are major grain producers, and as the war continues, that ability diminishes for this crop year, particularly for Ukraine. Ukraine has been considered the “bread basket” of Europe for centuries. TFI took issue with the implications that fertilizer companies are taking advantage of the Russia/Ukraine situation, saying that is far from the truth: “The U.S. fertilizer industry is committed to serving farmers and makes it unequivocally clear that ensuring grower access to the nutrients needed to sustain people around the world is of the highest priority,” said TFI. They also said that there have been reports of misleading information regarding the applicability of U.S. sanctions to companies in the industry, and the institute strongly encourages companies to consult legal counsel for advice on sanctions-related issues in question.

As most readers know, I am a very serious advocate of testing soils as well as feeds and cows. When crop inputs are cheap, not testing soils is a bad idea; when they’re very expensive – like right now – not testing soils is a terrible idea; it’s clearly a case in which ignorance is not bliss. The soils lab I work with the most is Dairy One in Ithaca. I talked to one of their representatives on March 8, asking how many soil tests were run last year as well as the previous year. I recalled that in 2019 Dairy One performed about 28,000 lab analyses. In 2020 they processed 44,339 soil samples; in 2021, that figure was 43,987 analyses. I was disappointed about that slight drop, but their lab (during the pandemic) was working 100% remotely except for actual technicians wearing masks. I am personally directly responsible for about 1% of those analyses taking place. People will call me up to discuss a particular weed problem. Russian knapweed is one such example. I’m asked why that weed is taking over a pasture. I answer the question with my own: “What do your soil test results tell you?” That’s normally followed by loud silence, because no test exists. If nothing else, knowing if the field needs lime, and addressing that need, will enable growers to sensibly cut back on overpriced fertilizer components. In the last two years lime costs have gone up 15% – 20%. Cost increases on fertilizer inputs are roughly 10 times 10%.

Cassim also forwarded me a letter from one of his Canadian industry contacts. Here it is, verbatim:

“Yesterday, March 3, the Canadian government announced sanctions of 35% on all imports from Russia on the value of the goods. These sanctions are applicable now for any cargo that is not already in transit. Eastern Canada is a major importer of nitrogenous products from Russia, and we are currently working to obtain other sources of supply to alleviate this situation beyond our control.

Unfortunately, we are forced to immediately stop all sales of UAN (urea/ammonium nitrate) solutions and N-Power Bleu until we find an alternative solution. Therefore, no orders, without exception, will be accepted as of this morning, March 4. Only orders entered into our system as of yesterday will be accepted. Again, this is completely out of our control, and thank you for your understanding!

[signed] Jean-Sébastien Milot, Operations Manager & Fertilizer Supply Manager, Saint-Hyacinthe, Québec”

This amounts to a boycott on the part of Canada – as well as many other countries around the globe. Will the boycott work? History might answer that question. Next year, Massachusetts will celebrate the 250th anniversary of an event where that colony ceased business relations with a country. Historians refer to that occurrence as the Boston Tea Party.

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