Under the Agridome

I am ready to plant. This past week I continued preparation for the spring planting season. With new crop corn currently trading for $8.50 a bushel and soybeans at $18.50 (https://www.dtnpf.com/…), you would think it would be the stuff that farmers dream are made of.

Sure, these prices are good, but increasingly I'm thinking that the spring of 2022 is coming with a little bit of angst based on the surprising circumstances of our time. Who could have ever imagined nitrogen being about 120% higher than last year and special tariff surcharges being applied to fertilizer imported from Russia and Belarus?

When I was doing budgets earlier this winter, I put in some pretty whopping price increases for fertilizer and chemicals across the board. I must admit that I always like hoping I'll be wrong in that regard, but increasingly the sticker shock of farm inputs is becoming very real. On top of that, this week we had a signal from the Bank of Canada that interest rates would be rising in the future as it raised its overnight lending rate to 1%, a full 50 basis points higher than the last time.

For farmers like me who have been preparing busily for spring planting during the last week, it certainly has a different feeling.

For instance, at first glance you would think that corn acreage would be down in Ontario and Quebec this year because of all the rumors of expensive and pricey fertilizer. However, as I took delivery of some seed corn last week, I was told that seed corn sales were up in Ontario. I expressed my surprise to the salesperson who, quite rightly, told me he thought it was because of the lack of wheat acreage in Ontario. With about a third of my fall-planted acreage awaiting desiccation, that made a lot of sense.

Keep in mind that the USDA has pegged the lowest corn planting in five years at 89.5 million acres in that country. It's becoming increasingly understandable how the less-input-intensive crop soybeans might win the day.

We can debate all we want about what the crop mix will finally look like and whether the USDA will be correct in its estimation of less corn and more soybeans this year. The reality is the much higher prices that we are seeing have partly created the demand for the inputs that we need to grow big crops.

It just has so happened that Russia is a large part of the fertilizer demand equation, which is creating a perfect storm for high fertilizer prices in 2022. The combination of COVID-related supply constraints and war-related trade barriers have had a huge impact on the inflationary environment we find ourselves in this spring. At this point, it shows no signs of changing back to the way it used to be.

So, what do we do? Do we close our eyes and just hope it works out? Will $20 soybeans and $9 corn make it all go away? Or at the end of the day, will it just make it worse for 2023 and beyond? Answers to those questions is truly blowing in the wind because we do not know the answers. That is, we don't know how long the war will last and we don't know what the geopolitical world will be like in the next few years if the war continues. It might be back to the future to a time where Russia was not a player in agricultural input markets. It might be none of that. There are so many great unknowns as we look ahead.

Some farmers might look at the 35% Canadian tariff imposed on fertilizer which was not in transit prior to March 2, 2022, as very unfair. It certainly seems that way, but in war these things happen. The Ontario Agri Business Association has been lobbying the federal government hard to try to smooth over all of these pricing anomalies. From what I heard Thursday, tariff surcharges on Urea, 28% N and MAP might be a fact of life for farmers in eastern Canada this spring.

It is all adding up to an increasingly inflationary environment where we are handling a lot more money. I was told by another farmer this past week that's exactly what's happening. We're paying a lot more for inputs, receiving a lot more money for our crops, but at the end of the day being in about the same place. That's if we have a good production year in the fields. On the other hand, we really don't want to talk about having a bad production year, because we all know inflation doesn't care.

The challenge for Ontario and Quebec farmers is to move ahead cautiously within this inflationary environment. There will be choices that have to be made. Do you really need that extra fertilizer? Are some of the price increases so onerous that the marginal revenue payback is not sufficient to cover the marginal cost of buying that additional input? Should we grow more soybeans with less fertilizer versus more corn with more fertilizer exposure? Should we prepare for a lot higher crop prices come the hot and dry of summer or should we expect just the opposite? There is so much to think about.

War has made things very messy, and it is likely to continue. We probably are being launched into unprecedented agricultural economic times, maybe even new benchmark price levels. As it is, it's our job as farmers to bring a big North American crop into fruition. The world needs it like never before. At the end of the day, even with all the bumps in the road we'll likely be successful. Farmers are resilient and needed like never before.

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The views expressed are those of the individual author and not necessarily those of DTN, its management or employees.

Philip Shaw can be reached at philip@philipshaw.ca

Follow him on Twitter @Agridome

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