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Grain And Fertilizer Prices Decline
Eighteen months ago, we quickly became acquainted with the significant role both Russia and Ukraine had in providing wheat, vegetable oils, and fertilizer to a large swath of the world’s population. This week, corn prices in the United States have dropped by almost 35 percent off their peak realized in the spring of 2022 when the impacts of the war were being initially felt.
So, why have prices come down so significantly while the war in Ukraine continues to rage and the ability to move commodities out of the Black Sea has degraded even further?
One reason for the drop in commodity prices relates to the market speculation early in the war that inflated prices. Uncertainty in markets fuels rumor and speculation. As the war has dragged on, diplomatic and trade efforts have provided more certainty to supply chains.
Another reason for the price decline is that markets for wheat and sunflower oil from Ukraine were for a very specific set of countries and these countries continue to experience significant upward pressure on their food prices. The supply chains and end-user countries for other commodities have not suffered the same impacts from the war in Ukraine. For example, the price of rice in sub-Saharan Africa has declined while wheat prices for Southern Asia and North Africa remain high.
South America ‒ Brazil in particular ‒ was poised to expand corn and soybean production before the Ukraine war. Growing conditions in South America have been sufficient to introduce new and significant supplies of corn into the world market. China and Mexico, traditional customers of the United States for corn, have moved to purchase much of this new supply.
Fertilizer prices have also declined as the market has adjusted to reduce dependence on Russian suppliers. India was poised to increase fertilizer production before the war even started and the United States has also ramped up production. Additionally, Western Europe is implementing policies to reduce the use of nitrogen fertilizers and the high prices of natural gas accelerated the implementation of this policy.
Finally, the strength of the U.S. dollar has made the price of U.S.-produced corn, soybeans, and wheat higher relative to other countries. The U.S. dollar remains the go-to currency in times of economic uncertainty. Prices for corn remain about 20 percent above pre-pandemic levels thanks to inflationary pressures and dry conditions in many parts of the Corn Belt this summer but current prices for corn and soybeans are much lower than last year.
What does this mean for farmers in Rockbridge County? Lower corn prices should provide a little more certainty for the poultry companies that contract with our poultry growers as well as for our dairy farmers. Unfortunately, farm gate prices for milk are declining and the 2024 may be a difficult year for our dairies. Lower corn prices nationally have spurred an already upward trend in cattle prices, which is good news for many of our farms in Rockbridge.
