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Mike Howell (00:08):
The Dirt with me, Mike Howell, an eKonomics podKast where I present the down and dirty agronomic science to help grow crops and bottom lines. Inspired by ekonomics.com farming’s go-to informational resource, I’m here to break down the latest crop nutrition research, use and issues, helping farmers make better business decisions through actionable insights. Let’s dig in.
(00:38)
Welcome back to The Dirt. Thanks to all our listeners for joining in. We’ve got a special guest with us today, Mr. Mark Tully with Nutrien. Mark, thanks for being with us today and if you will, tell us a little bit about yourself and what you do with Nutrien.
Mark Tully (00:51):
Thanks for having me here today. Excited to be on the podKast. I’ve been with Nutrien for six years now. My current role is manager of global market research at Nutrien, so really a title that is talking about eKonomics. So we sit on the eKonomics team here at Nutrien and focused on understanding supply, demand, market trends in global fertilizers as well as global agricultural fundamentals for the major row crops grown around the world. So certainly exciting times in that marketplace and keeping us really busy these days.
Mike Howell (01:21):
I bet. Everybody’s talking about prices these days. Now, a few weeks ago we did an episode and we talked a lot about fertilizer prices and where fertilizer prices are going these days. I know you’re an expert in that, but we’re going to kind of step away from that a little bit today and talk about the commodity prices, focus on different crops and see where we’re going with that. And we’ll come back and talk more about fertilizer a little bit down the road. So let’s get to The Dirt and see what we can find out about these ag markets today. Mark, can you share with us some of the key events and trends that’s happening around the globe today that’s affecting these global ag markets?
Mark Tully (01:54):
Sure. Well, I mean we all know agricultural markets have been exceptionally dynamic lately with a number of factors impacting supply and demand and ultimately the price of those crop commodities. But first and foremost, let’s look at the conflict in Russia and Ukraine which has immediately impacted global trade. Russia and Ukraine combined for nearly 30% of global wheat exports, 17% of global corn exports. Ukraine’s a key provider of sunflower oil to the world and so we’ve instantly seen a tightening of global grain supplies as well as oil seed supplies. And with the world missing those products, we’ve in turn seen some higher prices across really all of those grain and oil seed complexes. But on top of that, we think of the last couple of seasons being really below trend production for a number of key crop commodities in a number of key growing regions. We saw drought impact the last couple of South American crops, so smaller soybean crop a couple years back. The corn crop was significantly impacted last year.
(02:56)
We are now seeing potentially some of that La Niña impacting the current safrinha corn crop in Brazil at the moment. But then in the Americas, the North American part of the world, a significant drought last year. Western Canada, that might have been one of our worst droughts really since the 1980s. You saw significant drought in the U.S. northern plains right through to the California in the U.S. last year, and so significant underproduction for a number of crops in that region as well. And there’s been a couple challenges in Europe over the last couple of growing seasons too. And so we’ve now got this geopolitical scenario impacting trade on the back of what really was some lower production for a couple of years. So we’ve got this kind of perfect storm of tight supplies developing.
(03:39)
On top of this, the last year or so has been pretty strong for demand. As we exited the pandemic, we saw China buying grains and oil seeds from the U.S. at record levels and then a return of normal biofuel demand and even advanced biodiesel and biofuel demand post COVID. And so all these factors combined I think have left the global grain stocks-to-use ratios at their lowest level since 2007, 2008 when you’re excluding China. So significant tightness impacting what we’re seeing from a crop price perspective. But lastly, I think one of the key trends that I did want to touch on is all of this has led to discussions around food insecurity like we really haven’t seen in quite some time and it is becoming a key topic and a key concern for really consumers around the world at the moment.
Mike Howell (04:25):
Okay, thank you, Mark. That was an issue that we were going to try to address here. How serious is this food supply issue and is there anything we need to be on the lookout for as far as the food supply?
Mark Tully (04:35):
Well, I think I’d point to, like I say, the tightness in global stocks. So the reality is supplies are tighter than we’re used to and tighter than they have been really for the better part of a decade. And when we see these significant supply side factors driving the shortness in supplies rather than purely boost in demand, I think that adds to the pressure on the global S&D. As you know, that demand has to be met and ultimately we may not have the supplies to do that in the short term. And so when we look at the recent WASDE report from the USDA, they cut demand for a number of products in a number of regions, so we are going to have to see some demand rationing I think if there isn’t the supply available particularly from the former Soviet Union from a trade perspective.
(05:19)
And ultimately I think that can impact some food insecure nations that are traditionally importers of a lot of these products when they don’t have the domestic production on their own to supply the consumption needs of the country. The short answer, I think what we have to look for is can the North American production here, the Northern Hemisphere production this next season, achieve trend or above trend yield for a number of products to help resupply what is a tight global S&D and at the same time, how does the geopolitical situation play out in Russia and Ukraine? Are we going to start to see a return of some normal grain exports from the Black Sea and if not, I anticipate that we’ll see continued pressure in this area of food insecurity.
Mike Howell (06:03):
We’re hearing a lot of talk this year about growers need to try to maximize their yields this year and produce as much as they can. And we had Eric Snodgrass on a couple of weeks ago when he talked about the weather and it just doesn’t look like a real great weather outlook for the United States and Canada this year. He was talking about the potential for some extended droughts again this year. We hope the weather man’s wrong and hopefully we can get some rain and make a good crop this year to help with some of that. Mark, I know commodity prices have been going up. I’ve been on the road over the last couple of weeks and haven’t really got to check corn and grain prices, cotton prices, that kind of thing. Are they still trending upward this week? What’s the status on those?
Mark Tully (06:39):
Well, I think overall crop prices are historically strong at the moment, across grain and oil seed complexes. I think there has been a little bit of softness this week specifically in a couple of commodities, but they remain extremely elevated. I look at the corn prices and the S&D at the moment is exceptionally tight. We’ve got those challenges in Ukraine, but then you pointed out the weather in the U.S. has not been a fantastic start. It’s been pretty wet, pretty cold this spring and that’s really slowed the progress of planting. Although getting back closer to average, the reality is, it’s pretty wet I know for growers in North Dakota and Minnesota and they’re going to probably have a pretty tough time getting that corn crop in this year.
(07:20)
And so ultimately, I think on the corn front, we’re seeing the story around we know that there’s challenges in the former Soviet Union of getting grain out and we know that we’re likely not going to see a record corn crop out of the U.S. this year with lower than expected acreage and a slow start to the season. So I think that’s driving those very strong corn prices at the moment.
(07:40)
On the wheat front, similar story. The former Soviet Union lack of exports is a real challenge for those markets, but at the same time, North American crops really have been challenged by drought. We think of Canada’s crop last year, really poor on the wheat front because of all that drought we suffered. But then in the U.S., drought conditions persist for that winter wheat crop. And then we think of the spring wheat crop in the northern U.S. there, is pretty wet and so it’s delayed from a planting perspective. I think some concerns on the supply side from the wheat front continuing to support wheat prices. And then maybe finally just on the oil seed complex and looking at soy, we have seen soy production down the last couple of years which has led to some of these elevated soybean prices paired with really strong demand in China and this push for renewable diesel.
(08:28)
But at the same point in time, as strong as it’s been for soybean, there’s really been some production challenges on some of the substitutable oil seed products. We think of canola drought last year led to near record tightness in canola stocks in Western Canada. We look at the sunflower oil situation coming out of the Ukraine. That product’s likely not going to be available in the short term, and there have been some challenges producing palm oil this year with labor shortages, maybe not the best weather, and the high oil prices leading to some export quotas out of that region. So overall that’s been supported for that oil seed complex. So long and short of it, I think we’re continuing to see historically strong prices for both grains and oil seeds.
Mike Howell (09:09):
Well, Mark, obviously that’s great news for our growers and most of our listeners like to see these high commodity prices, especially with the way the input prices are. You know, you talked about low supply and understand supply and demand as long as this supply is low, these markets are going to stay high. What’s it going to take to make these markets kind of taper off and maybe start coming back the other way, get back to where they usually are or not seeing these record highs? What do growers need to look out for and maybe some triggers to say, “Hey, maybe I need to go ahead and get a lot of this crop sold before it goes down anymore.”
Mark Tully (09:39):
One of the big drivers that has an enormous amount of uncertainty to it at the moment is the geopolitical situation in the former Soviet Union. We’re talking significant grain and oil seed supplies not hitting market because of sanctions against Russia and the inability to move product out of the Black Sea due to the conflict in that area of the world. One thing I’d certainly be watching is how is that situation developing in the months to come. If we start to see perhaps sanctions removed or hopefully a peaceful resolution occurring, then there’s the probability that we see some increased grain trade out of that region and as a result, some loosening to that tightness we’re talking about on the supply side for grains and oil seeds. I think the other thing I’d probably be looking for is how production is developing in the U.S. and Canada this year.
(10:27)
You pointed to some of the challenges on the weather front that may prevent us from getting a record crop or a really big crop out of the ground, but to your point, weather can change fast and maybe the weather man’s wrong and we could see that shift the other way. And obviously if we get a big crop, there’s going to probably be some pressure on prices certainly domestically if that supply becomes available in the U.S. and Canada. And then the other thing I point to is really on the demand side. How is demand trending and to what level are maybe we seeing some shifts away from some of these crop commodities because of where prices are or because of where availability is.
(11:01)
If we start to see demand match supply to an extent, maybe you see some reductions in prices as well. Does China reduce their buying significantly or something along those lines. So from a global perspective, I think those would be the things I’d be looking at, although I’m not sure how likely any of those scenarios is to play out at the moment based on how challenging certainly the geopolitical situation is globally.
Mike Howell (11:24):
Right. Mark, we’ve talked a lot this morning about the commodity markets and how they’re at record highs for a lot of these commodities. Another thing I hear growers talking a lot about is obviously supply cost for this year. Not just the cost if you can find that they’re willing to pay for it, but there’s a lot of shortages in terms of input chemicals and other things like that. Do you have any insight on this? What can we expect as far as input cost and availability?
Mark Tully (11:48):
Yeah, I think that’s a really good question. And to your point where crop prices are today for many folks out there, it makes sense to buy this if you can get your hands on it. The challenge in many cases is can you get your hands on it? And one of the things I don’t think we talked about at the start here that really is impacting not just the agricultural sector, but really all sectors across the board, is supply chain disruptions. We’ve seen a number of ports are backed up. You can’t move product inland. Different export bans and quotas around the world are really impacting our ability to get many of the key products that we import every year. And so on the agricultural side of things, two areas I look at are crop chemicals. A lot of those active ingredients are produced in China and shipped out elsewhere to the world where they’re turned into the product that you ultimately put on the ground.
(12:38)
And I think we’re all familiar with what’s happened with the supply challenges in glyphosate as an example. A lot of that product comes from China and we’ve been short on it this year. Similarly, you mentioned you had a recent discussion on fertilizer, and a lot of fertilizer is not produced exactly where it’s going to end up being used. In Russia, Belarus, you’re talking about 40% of global potash shipments entering the global marketplace and with sanctions against them, it’s preventing large volumes of that product really reaching end markets. I think when we talk about these shortages, it’s a function of this geopolitical scenario that we’re in, and we’re seeing sanctions applied against major fertilizer producers and exporters, but at the same point in time, we have supply chains that are just not keeping up to demand and it’s leaving market short of key products like on the chemical side of things.
(13:28)
So how do I expect this to move forward in the short term? Geez, I wish I had a crystal ball like that to answer that question. I think we’re seeing a lot of activity across many global governments trying to figure out ways to improve the supply chain situation in their countries. But I think in the short term here, we’re probably going to continue to see some shortages until the supply chain catches up. But I think in the longer term, we’re not necessarily seeing producers leaving the market or anything like that. So the product is hopefully going to become available as long as it can move to market.
Mike Howell (14:00):
Okay, and you’re kind of leading me into the next question I had here. We know we’ve got to move these products to the market and a lot of these products are manufactured in other countries and we have to ship them in and shipping grain across the world. Fossil fuel prices are also at record highs. I know here locally diesel fuel is 5.15, 5.20 a gallon. Gasoline is about 4.50 a gallon. Do you want to talk about fossil fuel prices and what we can expect with that? How this is going to relate back to crop prices and everything else?
Mark Tully (14:30):
Yeah, it’s a good question. I feel the pain of many folks as I go to fill up my gas tank. It’s incredibly expensive at the moment. And ultimately I think we can point to again, geopolitical challenges here globally. Russia is a huge producer of oil and gas and the sanctions against them have impacted the ability of that product to move to market where you’d expect it to. And as a result, we’re seeing some shifts in global trade and higher energy prices around the world. You see crude oil prices well over a hundred dollars a barrel, which we haven’t seen for a little while now. I mean, think of how cheap it was just a couple years ago to fill up your tank during the peak of the pandemic to where we’ve gotten to today. It’s happened fast and I think it’s happened in a way that many people didn’t expect.
(15:15)
Looking forward on the fuel cost perspective, this one’s a challenging one to understand and predict. I think, again, we’re looking at a scenario where the impact of Russia on the global energy supply and demand situation is significant and the sanctions against Russia, I’m not sure how they’re going to play out, but it seems unlikely they’re going to disappear regardless of scenario. And it’s going to have a fallout for European energy, Western nation energy prices and really global energy prices as a whole. And so we may see some elevated prices here and certainly there’s many third party forecasts out there in the world that are calling for higher energy prices here in the short term as a result of that situation. So I think it may be one thing that we have to potentially get used to here in the short term until the situation in the former Soviet Union turns a different direction.
Mike Howell (16:06):
Along these same lines, natural gas is also going up and for our listeners, natural gas is one of the biggest input costs going into the manufacturing of nitrogen fertilizer. So it is going to stick around for a while and we’re just going to have to bite the bullet and deal with these high prices until things can make some of these changes that we’re talking about today, Mark. Mark, thank you for coming on today. We’ve covered a lot of ground this morning. Is there anything else you think that our listeners need to know about before we wrap this up?
Mark Tully (16:33):
No, just wishing all those listeners out there putting the crop into the ground and getting ready for this season, the best of luck as that progresses and a reminder out there that in a busy season like this with all the stress to stay safe and look out for each other. Take care, and thanks for having me.
Mike Howell (16:48):
Okay, thanks a lot, Mark. We appreciate you coming and we’re going to try to get you back here in a couple of months, maybe toward the end of the growing season and get another outlook on things and help these growers make better decisions going through the winter months. Maybe help decide when to sell this crop and what to look forward to for next year. So Mark, thanks again for joining us.
(17:08)
Listeners, we appreciate you joining us. As always, we want to ask you to pass this link to this episode along to your friends and neighbors. Let everybody else get a taste of this information. If you’re liking this program as much as we’re liking bringing it to you, please give us a rating and let us have some feedback, what you would like to see different and some different topics you would like us to discuss on this program. Join us again next week as we welcome Karl Wyant to the Nutrien Agronomy team. Karl is the new Director of Agronomy with Nutrien, and he’ll be joining us next week to talk about his new role as well as the importance of magnesium in crops and crop development. Until next time, this has been Mike Howell with The Dirt.
