Grainswest - Fall 2022

Fall 2022 Grains West 38 Hanmer said creating a true partnership as a trusted advisor is the way to navigate uncertainty and the volatility of the supply channel. “We find our advantage is to listen to our customers,” he said. “Retailers are just going to have to be nimble and understand the needs of their customers and act way faster than they’ve ever acted before.” He labels agriculture as a “resilient” industry that always ends up on the right side of history, but knows it is going to take more lumps than usual. “It’s just a matter of how scraped and beaten up are we going to be? The new norms have yet to be rewritten. In the last 24 months, it’s only gotten more uncertain.” At Synergy, the typical business plan was to create a yearly fertilizer outlook for its buying needs, but Hanmer said he is now rejigging the lookout sometimes weekly due to the fluidity of the situation. This means perpetually managing product flow and farmers’ expectations, both a constant challenge. It’s not as though farmers are unaware of the situation, or the economics behind it. Craig Klemmer, Farm Credit Canada principal economist, stated the obvious that just as input costs are rising, so, too, are crop prices. This includes record highs for multiple commodities, including canola, 21.4 million acres of which went into the ground this past spring. “For those that get a good crop this year, we expect a strong year financially for grains and oilseed producers,” he said. In effect, if both inputs and prices are up—or down—at the same time, farmers will not drastically change how they conduct business. “As long as commodity prices are increasing, you are not going to see a significant change in behaviour unless that comes with some technological improvements that are easily adaptable and improve overall farm economics in general,” he said. “Farmers need crop inputs. You’re not going to see them cutting fertilizer application rates too much. They might play with them a little bit year to year. They’re going to be looking at getting the most production they possibly can. That means applying fertilizer. It might accelerate some of the technology we use into VR application.” While this remains to be seen, it does not negate that this year’s crop is likely the most expensive in history when measured by input costs. Klemmer believes crop insurance and farmer programs will continue to be a help for those in need. For the foreseeable future, he expects fertilizer prices to follow corn in a linear fashion. “We’ve always seen that relationship,” he said. “In time, the expectation, or hope, is we see easing of the energy prices and have some supply built and developed.” Part of this supply increase will come domestically. KSPC announced in May it will double its production at Bethune, SK, to a total of four million tonnes. Mosaic plans to add another 1.5 million tonnes of potash production by the second half of 2023 at two Saskatchewan mines in Esterhazy and Colonsay. Nutrien, the world’s largest potash producer, pledged to increase potash production by five million tonnes to a total of 18 million by 2025. The company is also keenly interested in moving into clean ammonia production, which would align with fertilizer emission reductions programs popping up in many countries. “We’re doing what we can to add production to meet the global need,” said Jason Newton, Nutrien’s chief economist. DOMINOES OF FERTILIZER MARKET MADNESS Various factors have led to record-high demand and prices for crops and fertilizer since the second half of 2020. While the situation is not attributable to just one issue, here are a handful of moments to consider. Aug. 10, 2020: A derecho rips through the American Midwest, destroying the corn crop. Official USDA estimates initially pegged at 15.3 billion bushels were later reduced by seven per cent to 14.2 bbu. This set off a slow but con- sistent uptick in grain prices still seen today. At the same time, China snapped up massive amounts of American corn and lowered U.S. carryover numbers, which fell from an estimated 2.5 to three billion to just over 1.2 billion bushels. This shock contributed to the price increase for both corn and nitrogen. Wicked weather: The U.S. was also hit by a polar vortex in February 2021 and, later, Hurricane Ida. These two weather events shut down operations in multiple Gulf states, which led to delays and price fluctuation. Growing season 2021: Western Canadian farmers were hit with a heat dome and extremely hot and dry weather conditions. Many fields were written off before July 1. Farmers able to salvage some crop sold what they had for very high prices as the supply–demand relationship further distorted. To date, prices remain very high on virtually all commodities. FEATURE