Farmers feel the squeeze of inflation
Higher costs for seeds, fertilizer, weedkillers and labor could push up grocery bills this year, researchers say
Inflation is growing on the farm.
American farmers are paying significantly higher prices for their weed-killing chemicals, crop seeds, fertilizer, equipment repairs and seasonal labor, eroding some of 2021’s windfall from rising crop prices. Higher farm costs could help push up grocery bills further in 2022, analysts say, following a year in which global food prices rose to decade highs.
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"I just don’t see how I’m going to get paid this year," said Brooks Barnes, a second-generation farmer in Wilson County, N.C.
Mr. Barnes said he spent more than he ever had to operate his farm last year. Higher commodity prices at the time covered most of those cost increases. Facing even higher prices now, he doesn’t expect that to be the case for 2022.
On his farm where he grows tobacco, corn, soybeans, wheat and sweet potatoes, Mr. Barnes in the spring of 2021 said he paid $16 a gallon for Bayer AG’s Roundup, the world’s most commonly used weedkiller, for his crops. By September he bought it for about $40 a gallon and in February, his Nutrien Ltd. retailer told him it was $60 a gallon, he said. One of the fertilizers he buys, 24s, cost him $500 a ton from $175 last spring, he said. Float bed plastic, which holds water for his tobacco plant trays to float on in his greenhouses, cost him $82 a roll, compared with $70 a year ago.
"I’ve always been excited to start a new crop but I’m not excited at all for this one," said Mr. Barnes, who has been farming full-time since 2004.
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Supply-chain constraints and staffing problems are leading to higher prices for products and supplies across a variety of industries, especially food. U.S. inflation hit its fastest pace in nearly four decades last year. Food prices surged 7% in January, the sharpest rise since 1981, the Labor Department on Thursday said, as meat and egg prices continued to climb at double-digit rates.
A rally in prices for agricultural commodities such as corn and soybeans, which kicked off in mid-2020, pushed up incomes for U.S. farmers and led them to spend more freely on farmland and machinery. In 2021, U.S. farms’ net income was estimated to be about $117 billion, up 23% from 2020, according to the U.S. Department of Agriculture.
Even as crop prices remain high, supply costs are expected to outpace the price of agricultural goods in 2022, according to a January report from the Federal Reserve Board. Net income for farmers in Kansas is estimated to fall 65% from a year ago, according to a January study from Kansas State University.
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Growers’ biggest expenses each year, including fertilizer and crop chemicals, such as glyphosate, used to kill weeds and other pests are soaring in price. Glyphosate, Roundup’s active ingredient, is up about 250% from what it was 12 months ago, said Dean Hendrickson, vice president of marketing and business development at CHS Inc., a farm cooperative and major retailer of seeds and chemicals.
Bayer attributed the recent increases in glyphosate prices to a global shortage caused by weather events, energy restrictions, high demand for transportation and global supply-chain challenges, a spokeswoman said.
"We expect challenges to the global ag industry to remain in 2022 and beyond," the company’s spokeswoman said.
Bayer said Monday that a supplier of an ingredient for glyphosate ran into mechanical problems that may hamper production of the herbicide. The company said the supplier is on track to restore production, and Bayer said it expects any impact to be marginal in terms of its annual glyphosate production.
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Seed prices are also up. Crop-seed and pesticide supplier Corteva Inc. said prices that it charges farmers for seeds rose 10% in its most recent quarter and its crop-protection products were up 6% compared with the prior year to offset inflation. "We’ve demonstrated that we can move prices to cover costs and grow margins," said CEO Chuck Magro.
The price of anhydrous ammonia fertilizer is up more than 200% from a year ago at $1,492 per ton, an all-time high, according to agricultural research firm DTN. Fertilizer price increases partly stem from elevated natural-gas prices, a key ingredient for nitrogen-based fertilizers, as well as severe storms in the U.S. that disrupted production plants earlier this year. Major fertilizer producers including China, Turkey, Egypt and Russia also curbed exports in the second half of 2021, further pushing up global prices, analysts and retailers said.
Some farmers also blame fertilizer companies for the rising prices. A recent study from Texas A&M, commissioned by state corn growers associations, suggested that fertilizer costs tend to go up when corn revenues increase, even after accounting for natural-gas prices and higher demand.
"Our cost to buy products from our suppliers went up and therefore our prices for customers have increased," said Jeff Tarsi, head of global retail operations at Nutrien, a major fertilizer supplier.
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The potential for higher farming costs to cut into production of corn and other crops could fuel continued food-price inflation, analysts said. Higher corn and soybean prices, for example, raise the cost of animal feed for meat companies, which pass along the increase to consumers.
"I don’t think there is any reprieve for food prices to come down," said Kevin McNew, chief economist for the Farmers Business Network, an online marketplace for agricultural supplies. "It’s not just a logistics issue, or supply-chain issue to grocery stores, it’s deeper rooted than that."
Because of the higher costs, Mr. Barnes said he is holding back on many of the purchases he had hoped to make this year, including a new combine. He put his annual hunting trip to Saskatchewan, Canada, on hold this year, for fear his budget might be too tight.
Like many other U.S. farmers, Mr. Barnes also plans to adjust this year by reducing acres dedicated to fertilizer-intensive crops, and planting more soybeans and wheat, which tend to require less nutrients. Planted U.S. acreage of soybeans this year is projected to be up about 6% from last year and exceed corn for the second time in history, according to Farm Progress, a division of research firm Informa. The only other time was in 2018.
"My goal for the year is just to break even," Mr. Barnes said.
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