Skyrocketing input prices amid challenging weather conditions in South America

By Guil Signorini and Fabiano Colet, Department of Horticulture and Crop Science,The Ohio State University

The beginning of autumn marks the time of the year to turn our attention south and check the initial development of the growing season in Brazil and Argentina. At this time, South American growers are busy sowing their crops before spring takes place and brings rainfalls back. But before sowing, southern growers must have put a good effort into strategizing and circumventing challenges, especially in times of uncertainty. Their decisions and thought process may spark insights about North America’s upcoming ag input market landscape in five to six months.

The appropriate timing for planting has certainly been part of the thought process for Brazilian growers. The most logical driving factor in guiding growers’ decisions over planting date this season has been the high probability of La Niña. The National Oceanic and Atmospheric Administration (NOAA) agency projects a 79% probability of La Niña in the last quarter of 2022, with the probability dropping to 47% in January 2023. It will be the third consecutive season with La Niña effects on South American agriculture. NOAA authorities explain that the La Niña phenomenon is associated with unusual temperatures of mid-Pacific waters, which tends to reduce humidity in South Brazil and Argentina while causing excessive precipitations in the North. Another factor that is delaying soybean planting, especially in South Brazil, is the wheat harvesting season. Rainfall and cool temperatures delay wheat maturation, affecting soybean planting operations that take place once wheat is harvested.

Brazilian growers seem to have learned a lesson or two regarding planting dates in La Niña years. When compared against a 5-year pace average, the first-crop corn and soybean planting pace evolved fast last season, a season clearly marked by La Niña effects. Our article to the South America Update in November last year indicated that 65% of the corn and 55% of the soybean crops were already sowed nationwide. Coincidently, Brazil reached below-expectation yields for both crops. CONAB data shows that the national first-crop corn yield averaged 88 bushels per acre (4.6% below the previous 5-year average), and the soybean yield was 45 bushels per acre in the 2021/22 season (an 11% reduction against the previous 5-year average). A recent study from FarmDoc, University of Illinois, analyzes the case from a similar angle but uses Brazil’s long-term corn yield average trend. The study suggests that the occurrence of La Niña does not suffice to explain trend-deviating yields when the aggregated corn season is considered (first and second corn crops combined). Nevertheless, we notice below-average yields when focusing on the last two first-crop corn seasons.

Whether La Niña events explain first-crop corn yield reductions, Brazilian growers seem to have adapted their planting decisions this season. Planting operations in the 2022/23 season are progressing within the last 5-year pace range, but evidence of anticipation or rush planting has yet to be reported. Research agencies reported that half of the expected soybean acreage and 59% of the corn area were sowed until Oct. 31. Growers must have recognized that aligning growing stages with critical moisture requirements (VT-R3 in corn and R1-R5 in soybeans) and months with high probabilities of droughts due to La Niña is bad for business. Purposeful sowing delays may help manage La Niña effects and reduce the exposure to likely dry conditions when the crops need rain the most. That is particularly important in South Brazil and Argentina considering that the probability of La Niña drops from 79% to 47% in January 2023 and decreases steadily afterward.

Besides planting dates, Brazilian growers had to deal with highly volatile fertilizer and chemical prices during season planning. Fertilizer prices were expected to stabilize once disrupted supply chains resumed normal operations after the pandemic. That would be true if it were not for the Russia-Ukraine war. The World Bank reports high prices for three common ingredients in N-P-K formulations. According to the report, international prices for Urea are 62% higher versus October 2021. The picture is worse if we compare it to October 2020. Prices have increased 1.8 times, from $222 per ton in October 2020 to $615 per ton in September 2022. Record-high international prices for natural gas and ammonia are listed as critical causes for reduced supply and high urea prices. Similar trends are observed for diammonium phosphate (DAP) and muriate of potash (MOP). While the phosphorus source is 17% more expensive than a year ago and 110% versus 2020, the price for potash fertilizer is 1.6 times higher now against 2021 and 1.8 times higher versus October 2020. Current international prices for DAP and MOP are $682 per ton and $510 per ton, respectively.

In this skyrocketing price scenario for fertilizer, Brazilian growers have preferred a difficult route out. A recent report from IMEA (Mato Grosso Ag Economics Institute) indicates that soybean growers plan to reduce fertilizer expenses by 1.2% versus last season, while corn growers will reduce fertilizer use by 15.8% in monetary values. As a consequence, market agencies estimate that annual fertilizer sales in the country will fall 7.2% against last year. Independent surveys with grain growers from the South and Cerrado regions support these findings. The volume of N-P-K formulations spread on production fields is expected to drop by 11% and 8% in the respective regions. Growers must have taken these decisions after factoring in the challenges that La Niña will impose.

Unlike fertilizers, growers can seldom reduce chemical applications without major production losses. Despite the fast development of biological alternatives in the country, soybean growers project to spend 35.5% more on chemicals than last year. Corn growers estimate 15.7% higher chemical expenses. These figures are aligned with a recent market report from Sindiveg, the National Crop Protection Industry Agency. Total chemical sales have grown 17.6% in the first semester of 2022 against the same period last year. Sindiveg attributes the growth to higher costs of logistics and raw materials.

While some of the ag input price pressure is likely to spill over North America next season, we must prepare our arsenal to address non-ideal growing conditions and extreme weather events. Selecting high-yield varieties for our conditions and top-notch inputs is a good first step in planning for the season. But the market conditions and decisions made by Brazilian growers propose a few other actions we can take. Namely, a detailed planting date analysis and a critical cost-benefit analysis amid high input costs may guide us toward a solid season ahead. We may learn that we will be better off reducing fertilizer applications or considering alternative products this season after all. Only a detailed analysis will tell.