Watch now: Ukraine crisis could be felt by Illinois agricultural producers | Local company
BLOOMINGTON — Farmers in Illinois may soon see market disruption from Russia’s invasion of Ukraine, but it’s unclear for how long and how severe the impact might be.
Kreg Ruhl, division manager of Bloomington-based agricultural cooperative Growmark, said American farmers were “already paying the highest prices in fertilizer history” before the invasion. Fertilizer prices doubled last month.
Ruhl said the story begins with Russia’s natural gas movement, which is an input for ammonia – a building block for all fertilizers. In December, the price of gas peaked at over $60 per million British thermal units, but was subdued at $25, he said.
“Even at $25, it’s not profitable for (plant) fertilizers (in Europe) to run a large production,” Ruhl said.
With a major agri-input exporter currently under siege, Downs farmer Mark O’Rourke has many questions about what the future looks like. In particular, how long the effects can linger is in his mind. O’Rourke estimates a minimum of six months.
“Unless you have a crystal ball and buy two or three years of fertilizer,” he said on Friday, farmers are stuck waiting “how everything it will happen”.
He doesn’t know of any farmers who have stored that much. Only a few would have the storage.
The United States and other countries applied sanctions against Russia after the invasion, stoking fears of broad global economic repercussions, particularly in the energy and agriculture sectors.
Corn and soybean prices were also already high compared to pre-pandemic prices, said Michelle Kibler, an associate professor of agribusiness at Illinois State University. Russia and Ukraine are big contributors to global agriculture, accounting for 29% of global wheat exports and about 17% of corn exports, she said.
“Once news of the invasion broke late Wednesday, prices started to skyrocket in those commodity markets,” Kibler said.
The volatility was noticed in O’Rouke’s circle. He said grain markets exploded with the news but would have calmed down by the end of the day.
“Soybeans are down a bit,” O’Rourke said. “I had a friend who sold cereal at the top.”
While rejoicing for his friend, when O’Rourke went to check the prices himself, they had dropped even further.
“There are a lot of risks at the moment”
This kind of volatility is to be expected in futures markets, said Mike Doherty, executive director of the Illinois Wheat Association. Doherty also works as an agricultural economist at the Illinois Farm Bureau.
“Futures markets are supposed to reflect all risk, and there’s a lot of risk right now,” Doherty said.
It is difficult to make long-term predictions, especially since it is still unclear what impact the invasion will have on Ukraine’s wheat production, he said. The same goes for Russian energy and fertilizer exports, he said.
Other agricultural market watchers have warned there could be higher prices for inputs like fertilizer in the short term, but also said the longer-term impacts are unclear.
“There are reasons to be concerned about rising oil and fertilizer prices and the potential for fertilizer shortages, although time will tell if these prices remain high or adjust lower,” he said. Kibler said.
Higher agricultural commodity prices could be good for farm incomes, but this will be at least partly offset by higher input costs.
Illinois winter wheat growers are much closer to their June harvest than corn and soybean growers, so they could benefit from higher prices if they make contracts now, Doherty said. .
Ruhl said the dynamics of uncertainty and market volatility are difficult for farmers to manage.
“We think there are enough supplies to plant crops this year, but it’s more a question of price,” Ruhl said.
Market volatility will have another effect for farmers on crop insurance prices, which are determined based on volatility in February, said central Illinois agricultural commentator Stu Ellis.
“It will impact crop insurance premiums, making them higher,” he said.
For at least one agricultural products company based in Illinois, the invasion also raises concerns for its employees around the world. Archer Daniels Midland, based in Decatur, has more than 600 employees in Ukraine and operates several 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.
ADM and Illinois-based John Deere closed operations after the invasion began.
Ruhl explained that natural gas is heated for use as feedstock, breaking it down into hydrogen which is combined with nitrogen in the air to form ammonia.
Ruhl, the director of Growmark, also sees a ripple effect that drives up food prices and the cost of general goods. He added that there is huge industrial demand for ammonia that is unrelated to agriculture. It also goes into plastics, nylons, particle board in residential construction and industrial refrigeration.
World food prices could also be affected, given Ukraine’s position as a major producer of corn and wheat, Ellis said. Demand for American products could increase, but a loss of Ukrainian products could be difficult to recover.
“We’re going to see global food prices go up, for food-deficit countries that’s not going to be a good thing,” he said.
US residents may also see these higher prices when buying food from grocery stores, in addition to inflation, Kibler warned.
Doherty is more skeptical about what might happen, not least because it’s unclear how long the market disruptions will last.
Even if rising commodity prices persist, very little of that translates to supermarket shelves, Doherty said.
“90% of the price of a food product in a supermarket is everything after the farm gate,” he said.
O’Rourke said there was a tendency for knee-jerk reactions in the markets and wondered “who do you believe” in news reports. It gives a feeling of uncertainty.
He said he is optimistic that the people and their leaders don’t want long-term conflict.
“It doesn’t benefit anyone,” O’Rourke said.
Illinois lawmakers react to Ukraine invasion
Senator Tammy Duckworth, D-Ill.
Sen. Dick Durbin, D-Ill.
Cheri Bustos, D-Illinois, Representative for Illinois’ 17th Congressional District
Illinois Governor JB Pritzker
Contact Connor Wood at (309) 820-3240. Follow Connor on Twitter: @connorkwood