BLOOMINGTON – Illinois farmers could soon experience market disruption from Russia’s invasion of Ukraine, but it’s unclear how long and how significant the impact could be.
Kreg Ruhl, an area manager at Bloomington-based agricultural cooperative Growmark, said American farmers were paying “the highest prices in fertilizer history” even before the invasion. Fertilizer prices have doubled in the past month.
Ruhl said the story begins with Russia’s natural gas transportation, which is an input for ammonia — a basic building block for all fertilizers. In December, the price of gas peaked at over $60 per million British thermal units but fell to $25, he said.
People also read…
“Even at $25 for fertilizer (crops) over (in Europe) it’s uneconomical to run large scale production,” Ruhl said.
With a major exporter of agricultural inputs currently under siege, central Illinois farmer Mark O’Rourke has many questions about what the future holds. In particular, he is concerned with how long the effects can last. O’Rourke estimates at least six months.
“If you didn’t have a crystal ball and you bought two or three years’ worth of fertilizer,” he said Friday, farmers are “waiting to see how this plays out.”
He doesn’t know of any farmer who has stocked up so much. Few would have the memory.
The US and other countries imposed sanctions on Russia after the invasion, stoking fears of sweeping global economic waves, particularly in the energy and agriculture sectors.
Corn and soybean prices are also already high compared to pre-pandemic prices, said Michelle Kibler, associate professor of agribusiness at Illinois State University. Russia and Ukraine are major contributors to global agriculture, accounting for 29% of global wheat exports and around 17% of corn exports, she said.
“When news of the invasion broke late Wednesday, prices in these commodity markets began to rise,” Kibler said.
The volatility was noted in the O’Rouke circle. He said grain markets spiked with the news but calmed down by the end of the day.
“Soybeans ran out a bit,” O’Rourke said. “I had a friend who sold a few seeds on the highs.”
When O’Rourke went to check the prices himself, they had fallen again.
“There is a big risk at the moment”
That kind of volatility is to be expected in futures markets, said Mike Doherty, executive director of the Illinois Wheat Association. Doherty also serves as an agricultural economist with the Illinois Farm Bureau.
“Futures markets are meant to reflect all risks, and there are a lot of risks right now,” Doherty said.
It’s difficult to make long-term predictions as it’s still unclear what impact the invasion will have on Ukraine’s wheat production, he said. The same applies to Russian energy and fertilizer exports, he said.
Others monitoring agricultural markets warned that there could be higher prices for inputs such as fertilizers in the near term, but also said the longer-term impact is unclear.
“There is some concern about rising oil and fertilizer prices and potential fertilizer supply shortages, although time will tell if these prices stay high or adjust downward again,” Kibler said.
Increased prices for agricultural products could have a positive impact on farm incomes, but this is at least partially offset by higher input costs.
Illinois winter wheat growers are much closer to their June harvest than corn and soybean growers and could therefore benefit from higher prices if they contract now, Doherty said.
Ruhl said the dynamics of uncertainty and volatile markets are difficult for farmers to cope with.
“We believe there will be enough supplies to grow crops this year, but it’s more a matter of price,” Ruhl said.
Market volatility will have another effect for farmers on crop insurance prices, which are determined based on February volatility, said Stu Ellis, central Illinois agriculture commentator.
“It will affect crop insurance premiums, which will increase them,” he said.
For at least one Illinois-based agricultural products company, the invasion is also a concern for its global workforce. Based in Decatur, Archer Daniels Midland employs more than 600 people in Ukraine and operates multiple facilities including in Odessa and Kyiv.
The company’s top priority is the health and safety of its employees and their families, said ADM spokeswoman Jackie Anderson.
Illinois-based ADM and John Deere suspended operations after the invasion began.
Ruhl, the Growmark manager, explained that for use as feedstock, natural gas is heated and broken down into hydrogen, which combines with nitrogen in the air to form ammonia.
Ruhl also sees a ripple effect pushing up food prices and the cost of general goods. He added that there is huge industrial demand for ammonia that is not related to agriculture. It also goes into plastics, nylons, chipboard in home construction and industrial refrigeration.
Global food prices could also be affected, given Ukraine’s position as a major corn and wheat producer, Ellis said. Demand for US products could increase, but a loss in Ukrainian products could be difficult to recover.
“We’re going to see food prices going up around the world, which isn’t going to be a good thing for food-deficit countries,” he said.
US citizens could also see these higher prices when they shop for groceries at the grocery store, in addition to inflation, Kibler warned.
Doherty is more skeptical about what could happen, especially since it’s unclear how long the market disruptions will last.
Even if higher commodity prices continue, very little of it will make it onto supermarket shelves, Doherty said.
“90% of the price of a grocery product in a supermarket is what happens after the yard gate,” he said.
O’Rourke said there was a tendency for knee-jerk reactions in the markets.
But he said he’s optimistic that the people and their leaders don’t want long-term conflict above all else.
“It’s doing no one any good,” O’Rourke said.
Contact Connor Wood at (309) 820-3240. Follow Connor on Twitter: @connorkwood