Ag input supplies, prices could remain under pressure into 2023

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.