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Production Input Outlook

2023 Southern Outlook Conference

Knoxville, Tennessee

October 2, 2023

Ryan Loy, Ph.D.

Assistant Professor and Extension Agricultural Economist

Department of Agricultural Economics and Agribusiness

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FERTILIZER

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Weekly North America Fertilizer Price Index

All fertilizer prices reported to Bloomberg are down ~19% since February 2023

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Key Fertilizer Price Update

Nutrient	September 2021 Price ($/lb)	September 2022 Price ($/lb)	September 2023 Price ($/lb)	Price Change Over 2022
Urea	$0.28	$0.32	$0.24	-$0.08
UAN-32	$0.21	$0.32	$0.20	-$0.12
DAP	$0.33	$0.37	$0.29	-$0.08
Potash	$0.30	$0.29	$0.19	-$0.10

Source: Bloomberg Green Markets

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USDA Fertilizer Forecasts

	Corn		Soybeans		Wheat		Cotton		Rice
	2023F	2024F	2023F	2024F	2023F	2024F	2023F	2024F	2023F	2024F
Operating costs
Seed	$94.06	$94.25	$62.69	$62.82	$14.69	$14.72	$84.47	$84.64	$92.59	$92.78
Fertilizer	$189.55	$156.92	$48.67	$40.29	$72.38	$59.92	$103.16	$85.40	$156.28	$129.37
Chemicals	$42.88	$39.51	$47.70	$43.96	$20.83	$19.19	$92.95	$85.65	$115.99	$106.88
Custom Operations	$27.15	$27.97	$15.18	$15.63	$16.51	$17.00	$31.10	$32.03	$111.56	$114.89
Fuel, lube, and electricity	$39.50	$40.56	$20.20	$20.74	$15.42	$15.84	$45.24	$46.46	$103.06	$105.83
Repairs	$43.04	$43.26	$35.66	$35.85	$31.15	$31.32	$54.85	$55.14	$63.72	$64.06
Other variable expenses	$0.33	$0.34	$0.02	$0.02	$0.94	$0.97	$96.18	$101.25	$13.55	$13.95
Interest on operating capital	$9.78	$6.51	$5.15	$3.54	$3.85	$2.57	$11.38	$7.92	$14.71	$10.14
Total ($/acre)	$446.29	$409.32	$235.28	$222.85	$175.78	$161.53	$519.32	$498.48	$671.46	$637.91

Source: USDA-ERS, 2023

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USDA Fertilizer Forecast Cont.

	Peanuts		Sorghum		Oats		Barley
	2023F	2024F	2023F	2024F	2023F	2024F	2023F	2024F
Operating costs
Seed	$118.76	$119.00	$13.24	$13.26	$18.07	$18.10	$20.48	$20.53
Fertilizer	$110.45	$91.43	$60.76	$50.30	$63.99	$52.98	$72.08	$59.67
Chemicals	$162.82	$150.03	$37.62	$34.66	$10.24	$9.43	$28.44	$26.20
Custom Operations	$100.78	$103.79	$20.91	$21.54	$10.81	$11.13	$6.94	$7.14
Fuel, lube, and electricity	$65.62	$67.39	$13.42	$13.78	$25.33	$26.01	$20.65	$21.20
Repairs	$73.42	$73.80	$31.45	$31.61	$33.44	$33.62	$34.96	$35.14
Other variable expenses	$0.88	$0.90	$0.14	$0.15	$2.54	$2.62	$2.79	$2.87
Interest on operating capital	$14.17	$9.79	$3.98	$2.67	$3.68	$2.49	$4.17	$2.79
Total ($/acre)	$646.90	$616.14	$181.52	$167.97	$168.11	$156.38	$190.51	$175.55

TAKE HOME MESSAGE:

USDA Forecasts that:

Fertilizer Expenses are down ~17% from 2023

Interest on Operating Capital is down ~32% from 2023

Source: USDA-ERS, 2023

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World Events Impacting Input Prices

Russia – Ukraine Conflict

Russia largest exporter of fertilizer (~$13.1 Billion).
Global capacity has adjusted for the conflict (Kee et al., 2023).

Potash Strikes: Solved.

Port workers accepted a deal in August 2023 (CBC News, 2023).

Price Decline and Nitrogen Fertilizer Usage:

Narrow premium on Urea (Paulson et al., 2023).

August 2021 (invasion): Fert prices up 25% compared to march 2021.
accounting for 23% of ammonia exports, 14% of urea exports, 10% of processed phosphate exports, and 21% of potash exports
Fert and grain prices peaked in May 2022. Have steadily come down since
Alternative suppliers in Australia, EU, and Canada.
premium narrowed in 2022 as global fertilizer markets were disrupted by the Russia-Ukraine conflict. The premium on liquid, relative to anhydrous, has returned to more historical levels while the gap has continued to narrow between urea and anhydrous prices.
AA: $586/ton (33% decline). LN: $473/ton. Urea: $473/ton
Per lb N basis: AA: 82%, LN: 28%, 46% Urea
the premium on urea narrowed for much of 2022, and the prices of anhydrous and urea have been very similar on a per pound of N basis so far in 2023.
Urea may be more attractive as AA and Urea are essentially the same cost per pound of N.

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Domestic Natural Gas Price

Source: U.S. Energy Information Administration, 2023

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FUEL

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U.S. Retail Gasoline

Source: U.S. Energy Information Administration, 2023

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No. 2 U.S. Diesel Prices

Source: U.S. Energy Information Administration, 2023

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No. 2 Diesel Prices by State

Source: U.S. Energy Information Administration, 2023

AAA – National Average Gas Prices, 2023

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Q4 2023 & 2024 Forecasts

Decline in global oil inventories.
Increase in the price of crude oil.
Fuel prices continue to fall.
USDA forecasts overall operating costs to decline.

	Q4 2023	2024 - F
Crude Oil ($/Barrel)	$84.46	$88.22
Gasoline Retail Price ($/Gal)	$3.60	$3.52
U.S. Crude Oil Production (Mil Barrels/Day)	12.78	13.16
No. 2 Diesel Retail Price ($/Gal)	$4.31	$4.07

Source: U.S. Energy Information Administration, 2023.

Reuters, 2023.

S&P Global Commodity Insights, 2023

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FARM ECONOMY

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Farm Debt

Farm debt forecasted to increase by 4.9%

Source: USDA-ERS, 2023

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Labor Expenses

2023 forecast ~$42.1 billion.
Up $1.78 Billion from 2022.
4.4% growth rate:

Highest since 2016.

Use of hired and contract labor depends on state and crop.

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Financial Risk

Decreasing NFI and historically high farm debt levels.

Lower direct government payments (relative to 2022).
High production expenses and lower crop prices.

Debt-Asset levels improve:

12.93% (2022) – 12.72% (2023F).
Lower is better!

Working Capital:

2023F: decline 5% relative to 2022.

Source: USDA-ERS, 2023

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Considerations for the Future

Fertilizer Supply and Grain Delivery:

Current water levels in the Mississippi River could hinder shipments (Mcfetridge, 2023).

2023 H-2A Worker Protection (U.S. Department of Labor, 2023):

September 12, 2023: proposal to amend regulations on certification of temporary employment workers.

Farm Labor Stabilization and Protection Pilot Program (USDA, 2023):

Address current workforce needs.
Expansion of regular migration pathways.
Improvement of farmworker working conditions.

the demand for H-2A workers has skyrocketed in recent years. DOL certified over 370,000 temporary H-2A jobs in FY 2022 – more than 7 times the number certified in 2005 and twice the number certified in 2016.

provisions related to protections for workers advocating on behalf of themselves and their coworkers, seat belt safety, and termination for cause, among other proposals

FLSP Program:

65 mil in grants available
address workforce needs in agriculture, promote a safe and healthy work environment for farmworkers, and aims to support expansion of lawful migration pathways for workers, including for workers from Northern Central America, through the Department of Labor’s seasonal H-2A visa program.
USDA identified that agricultural employers have experienced increased challenges finding an adequate supply of workers, which threatens our domestic capacity to produce a safe and robust food supply.
economic benefits for foreign workers and their families, and professional and economic development opportunities for communities that send their workers to participate in the H-2A program.
table and resilient food and agricultural sector relies on attracting and retaining skilled agricultural workers, and strong working conditions are critical to achieve that goal.

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References

Bloomberg Green Markets. (2023, September). Green Markets Report. Retrieved September 25, 2023, from https://fertilizerpricing.com/pricing-news/green-markets/.
CBC News. (2023, August 4). B.C. Port Dispute Ends as Workers Vote to Accept New Deal. Retrieved September 28, 2023, from https://www.cbc.ca/news/canada/british-columbia/port-workers-vote-result-august-4-1.6928803#:~:text=B.C.%20port%20dispute%20ends%20as,accept%20new%20deal%20%7C%20CBC%20News.
S&P Global. (2023, August 8). Global Crude Production Growth Seen in 2023, 2024, as US, others offset OPEC cuts: EIA. Retrieved September 28, 2023, from https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/080823-global-crude-production-growth-seen-in-2023-2024-as-us-others-offset-opec-cuts-eia.
US-EIA. (2023). Henry Hub Natural Gas Spot Price. Retrieved September 26, 2023, from https://www.eia.gov/dnav/ng/hist/rngwhhdM.htm.
US-EIA. (2023). Weekly No. 2 Diesel Retail Prices. Retrieved September 26, 2023, from https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMD_EPD2D_PTE_NUS_DPG&f=W.
US-EIA. (2023). Weekly Gasoline Retail Prices. Retrieved September 26, 2023, from https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPM0_PTE_R30_DPG&f=W.
US-EIA. (2023). Short-Term Energy Outlook. Retrieved September 26, 2023, from https://www.eia.gov/outlooks/steo/.
Kee, J., Cardell, L., Zereyesus, Y.A. (2023, September 18). Global Fertilizer Market Challenged by Russia’s Invasion of Ukraine. USDA-ERS. Retrieved September 20, 2023 from, https://www.ers.usda.gov/amber-waves/2023/september/global-fertilizer-market-challenged-by-russia-s-invasion-of-ukraine/#:~:text=Russia's%20invasion%20of%20Ukraine%20drove,of%20grain%20markets%20in%202022.
Paulson, N., Schnitkey, G., Zulauf, C., Colussi, J., Baltz, J. (2023). Fertilizer price decline may impact farmer’s nitrogen decisions. Michigan Farm News. Retrieved September 27, 2023, from https://www.michiganfarmnews.com/fertilizer-price-decline-may-impact-farmers-nitrogen-decisions.
USDA-ERS. (2023, August 31). Summary of U.S. Farm Income Financial Indicators. Retrieved September 26, 2023, from https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/data-files-u-s-and-state-level-farm-income-and-wealth-statistics/.
USDA-ERS. (2023, August 31). Highlights from the August 2023 Farm Income Forecast. Retrieved September 26, 2023, from https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast/.
USDA-ERS. (2023, August 31). Farm Income and Wealth Statistics. Retrieved September 26, 2023, from https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/.
USDA (2023, September 22). USDA Launches Program to Support Agricultural Employers and Farmworkers, Aiming to Increase Economic and Supply Chain Resilience as Part of President Biden’s Investing in America Agenda. Retrieved September 28, 2023, from https://www.usda.gov/media/press-releases/2023/09/22/usda-launches-program-support-agricultural-employers-and.

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Thank You! �� Questions?

Ryan Loy

University of Arkansas Division of Agriculture
2301 S University Ave, Little Rock, AR, 72204
Office: 307L
rloy@uada.edu
(214) 642-9066