Communication with ag input suppliers will remain extremely important this fall as farmers prepare for harvest and planning for the 2023 season.
Supplies of ag inputs are expected to remain somewhat tight this fall and into next year due to a host of headwinds including geopolitical issues, tariffs, high raw input prices, regulatory and freight costs and a tight labor market among other factors. Prices of many products, subsequently, could remain volatile.
GROWMARK leaders discussed ag inputs and current supply chain dynamics during the cooperative’s 2022 System Summit held the first week of Augustin Normal.
“As I look to 2023, I see more of the same challenges we experienced so far in 2022,” said Jeff Bunting, GROWMARK’s vice president of crop protection. “Hopefully there’s some improvement.”
The Energy Information Administration recently forecast a slight easement of some energy prices into next year in its short-term energy outlook released Aug. 9. It projects average prices in the U.S. for 2023 at $89.13 per barrel of oil (down $9 from this year’s average) and $4.14 for a gallon of diesel fuel (down 67 cents). Natural gas prices, however, are projected to average $14.95 per thousand cubic feet in 2023, up 39 cents from this year’s projected average price, while the average price of electricity could rise 37 cents to $14.93 per kilowatt hour next year.
Meanwhile, propane prices eased to $1.14 per gallon as of July 29, since reaching multi-year highs in March. However, propane inventories remain below the five-year average as harvest approaches.
“Propane supplies are tight,” said Kelvin Covington, GROWMARK’s vice president of energy. “Crop drying and anhydrous ammonia compete for the same assets. We’re planning for areas to prioritize from a systems perspective.”
U.S. oil refiners are currently operating at a high level, near a 95% utilization rate, in response to increasing energy demands. But refining capacity is down by nearly a million barrels per day compared to previous years as the domestic rig count remains below historic levels, Covington noted.
Prices could remain under pressure for everything from diesel to propane as the U.S. competes in a world market and exports of energy products remain strong. U.S. exports of diesel to Europe, for example, have increased.
“Although we have inventory issues here, products go to where the highest value is,” Covington said.
The situation is similar on the crop nutrient side of the ag inputs business as suppliers balance the domestic and international markets.
GROWMARK responds by diversifying its acquisition of products from all over the world, according to Kreg Ruhl, GROWMARK’s vice president of crop nutrients. The cooperative bought crop nutrient supplies from 75 different vendors at 225 points this past year.
“To feed this system we need options,” Ruhl said. “I’d say diversification is the strategy for our (crop nutrient) team.”
Covington and Ruhl say another key strategy to deal with tight supplies of fuel and fertilizer is to keep storage facilities full. And, of course, constant communication between suppliers and customers.
“Among the key activities to get ready for this fall is communication,” Ruhl said. “We’ve got to have a good plan and be talking daily.”
As for crop protection products, Bunting believes tight supplies for some products will remain an issue. More than half of crop protection products, either finished goods or active ingredients, originate from China, Rod Wells, GROWMARK vice president of supply chain and logistics, noted.
“We want more (pesticide manufacturing) here, but I’m not sure the regulatory environment is conducive to that in the U.S.,” Bunting said. “And, we still need other ingredients that come from China and India.”
On the bright side, Bunting predicts tight supplies of dicamba could ease into next season.
Meanwhile, transportation costs are expected to remain high due to everything from high fuels prices and a truck driver shortage to congestion at ports in the U.S. and other locations. That will keep inflationary pressure on everything from food and ag inputs to processed goods.
“Freight costs are high, and that’s across all modes,” Wells said.
“The labor market is extremely tight,” he noted. “Today, we’re about 80,000 truck drivers short (nationwide) and we’re headed to double that. And, they’re not all endorsed to handle hazardous materials, so it limits the pool (of drivers) to a greater degree in our system.”
Fortunately, the employee turnover rate at GROWMARK’s distribution centers and trucking fleet isn’t as high as other industries, Wells noted.
The expression “when it rains, it pours” certainly sums up the weather pattern much of this growing season in Illinois.
Those who received steady rounds of rain absorbed massive downpours that caused extensive flooding, particularly in parts of northern, southwest and southeast Illinois in recent weeks.
Meanwhile, there are farmers in portions of Illinois, and more so in states west of the Mississippi River, who probably still feel like they can’t buy a rain this season.
So, what’s with the extreme disparity in rainfall events? Convective thunderstorms typically generate a wide range of rainfall within a small geographical area, and that’s just what the jet stream is funneling right through the state as the subtropical flow from the south and northern polar jet merge.
“We’re in a region where we’re seeing the two jet streams come together,” meteorologist Jim Rasor said at the Illinois Wheat Association’s summer forum in Okawville (Washington County). “The jet streams are like the train tracks and the storms are the trains.”
And some of the storms that barreled into Illinois on this track dropped close to a foot of rain or more in some areas in recent weeks. Some of the heavy downpours were fed by nearly unbearable humidity, at times.
“We’re already wetter than normal down here (in southern Illinois) for the month because of one rain event,” Rasor said on Aug. 9.
The stretch of extreme rainfall events improved topsoil moisture ratings in the state to 18% surplus, 58% adequate and 24% short or very short as of Aug. 8. Nearly one-third of topsoil moisture ranked short or very short back on July 11.
But there are still areas of the state quite short on moisture. Portions of Champaign County and the southern tips of Alexander and Pulaski were in severe drought as of Aug. 11, according to the U.S. Drought Monitor. Moderate drought also remains an issue in all or parts of DeWitt, Douglas, Edgar, Piatt and Vermilion counties in east central Illinois and in Hancock, Henderson, McDonough and Warren counties to the west.
The weather outlook favors hotter and drier conditions to the north and warm, muggy and wet conditions to the south the next 45 days, with a fairly mild and dry forecast for harvest, according to Rasor.
Long-term, the rise in rainfall disparity and extreme precipitation events could persist.
“Climate change is real,” Rasor said. “A warmer atmosphere will hold more humidity and more humidity will make more rain. But, we’re also getting extended dry periods in the summer (in between storms).”
Since 1981, the frequency of daily 2-plus-inch rain events has doubled, Eric Snodgrass, principal atmospheric scientist at Nutrien Ag Solutions, previously told FarmWeek.
“The frequency of 500-year flood events is increasing,” he said.
But that’s not the case everywhere, as evidenced by the multi-year drought in the southwest and western U.S.
“For us, we’re getting the rain,” Rasor said. “But, other places are getting less.”
In fact, changing precipitation patterns are causing a shift in the Corn Belt, according to Elwynn Taylor, Iowa State University climatologist.
“We’ve been getting increasing moisture in the Corn Belt, including almost all of Illinois. It’s pushing the Corn Belt to the north and west,” Taylor previously told FarmWeek.
The geographical center of the Corn Belt was located over Springfield in 1950, but has since moved to Peoria by 1964, the Quad Cities in the next decade and currently sits close to Des Moines, Iowa, Taylor noted.
“Minnesota was barely part of the Corn Belt (in the mid-1900s) and now is a major part of it (along with the Dakotas),” he said. “The reason is precipitation.”
Illinois Farm Bureau led a two-part effort to oppose the Inflation Reduction Act, the massive climate, tax and healthcare spending package advanced by Congress.
More than 1,200 Farm Bureau members contacted their congressional representatives, urging them to vote “no” on the bill, largely because of its tax implications for farmers. Farm Bureau also sent a letter Aug. 11 to the full Illinois congressional delegation, asking each of the 18 members to vote against it.
IFB President Richard Guebert Jr. thanked members who responded to the organization’s action request. “I appreciate their efforts to oppose this bill,” he said.
The $740 billion legislation passed the U.S. Senate Aug. 7 on a party-line vote and was approved by the U.S. House Friday on a 220-207 vote. It now heads to President Joe Biden for his signature.
“IFB is disappointed Congress has advanced the Inflation Reduction Act, legislation that writes farm bill provisions outside of farm bill discussions, increases taxes on American businesses when the country is entering a recession and does little to address record-high input costs,” Guebert said.
Other than significant federal investments in renewable energy and other methods to cut greenhouse gas emissions, the package also makes changes to existing healthcare policy and the tax code. The former includes a provision to allow Medicare to negotiate drug prices and an extension of expiring Affordable Care Act subsidies, while the latter features a 15% minimum tax on corporations and a new excise tax on stock buybacks.
Also central to the legislation is $40 billion for climate-smart ag initiatives, with about half of the funding — $18 billion — going toward four existing and long oversubscribed USDA conservation programs.
Specifically, the bill allocates $8.45 billion to the Environmental Quality Incentives Program (EQIP); $4.95 billion for the Regional Conservation Partnership Program (RCPP); $3.25 billion for the Conservation Stewardship Program (CSP); and $1.4 billion for the Agricultural Conservation Easement Program (ACEP).
Starting in fiscal year 2023, which begins Oct. 1, EQIP, RCPP and CSP would each receive $250 million, while ACEP would get $100 million.
Another $1 billion would go to USDA’s Natural Resources Conservation Service for conservation technical assistance, with NRCS receiving an additional $300 million to track and measure the impact of ag practices on greenhouse gas emissions.
Speaking with the RFD Radio Network Aug. 10, Guebert said although IFB appreciates the ag provisions and is pleased lawmakers recognize the role agriculture can play in addressing climate change issues, Farm Bureau has concerns with the bill legislating conservation programs outside of farm bill discussions with ag groups and other stakeholders.
”A number of folks did not have an opportunity to have input into that process,” Guebert said, adding that substantial increases in Title II spending could come at the expense of important farm safety net programs that are vital to producers.
Democrats also included in the bill around $14 billion for rural development funds, which are intended to boost clean energy and stimulate economic growth.
Anchoring those provisions is $9.7 billion in grants and loans for rural electric cooperatives to pursue renewable energy and energy efficiency projects; $1 billion in forgivable loans for other rural renewable energy projects and about $2 billion for USDA’s Rural Energy for America Program.
Rural electric cooperatives investing in renewables would also receive direct payments for renewable energy tax credits.
And the bill would provide more funding for the production and use of biofuels, with $500 million to build and expand blending, distribution and other ethanol and biodiesel infrastructure.
The $1-per-gallon tax credit for biomass-based diesel would be extended through 2024 and then substituted in 2025 by a clean fuels tax credit, which would vary based on the carbon rating of the biofuel.
Sustainable aviation fuel would get a temporary tax credit while the clean fuels credit, to be in place through 2027, is implemented.