Inflation, war in Ukraine prompt revisions in crop enterprise budgets

Convergence of COVID, conflict and commodities

March 24, 2022

By Mary Hightower
U of A System Division of Agriculture

Fast facts

• Updated enterprise budgets now available
• Rising fuel, fertilizer prices prompt revision

(395 words)

(Newsrooms: with graph excerpted from report ‑ https://flic.kr/p/2narzmB )

FAYETTEVILLE, Ark. — Economists with the University of Arkansas System Division of Agriculture have revised enterprise crop budgets for the 2022 growing season, adjusting for significant changes in fuel, fertilizer and commodity prices.

The budgets are tools to help Arkansas farmers and others in the agriculture industry evaluating expected costs and returns for the upcoming crop production year and other related production economics information, data, and analysis.

CHARTING THE INCREASE — Chart excerpted from a new report from the Fryar center on effects of inflation and the conflict in Ukraine. (U of a System Division of Agriculture image)

“Recent sharp increases in fertilizer and fuel prices since that time have significantly altered expectations related to the costs and returns of crop production for the current growing season,” said John Anderson, head of the Agricultural Economics and Agribusiness Department for both the University of Arkansas System Division of Agriculture and the Dale Bumpers College of Agricultural, Food and Life Sciences. “We want to be sure our tools provide the most updated variables to enable farmers to obtain the most accurate assessment of the potential financial impact of changing input prices.”

“The Impact of Fertilizer and Fuel Price Changes on Expected Costs and Returns for Arkansas Row Crops,” published Wednesday by the Fryar Price Risk Management Center of Excellence, says the rising prices have roots in several sources. The report provides significant details for market changes in energy, crop commodities and variable costs in rice, corn, soybean and cotton.

COVID, commodities and conflict

“Inflationary pressure has emerged across the economy with the waning of the COVID pandemic, as pent-up demand interacts with ongoing supply chain disruptions to result in higher prices on a wide variety of products,” Anderson said. “In addition, bullish market fundamentals in both the fertilizer and fuel markets have supported higher prices for these products.”

Fuel is rising thanks to increasing demand as consumers edge into pre-pandemic travel habits, and domestic fuel production declines, the report said. In fertilizer markets, the strong outlook for commodity prices that began to emerge last fall set the stage for strong fertilizer demand and higher prices.

In addition to impacts on production costs, the conflict in Ukraine is having significant direct effects on commodity markets. The Russian invasion of Ukraine and sanctions on Russia have disrupted both fuel and fertilizer markets, adding further support for prices in those markets.

Russia and Ukraine together account for 20 percent of corn exports and 30 percent of wheat exports worldwide, according to the Foreign Agricultural Service of the U.S. Department of Agriculture. The United Nations Food and Agriculture Organization estimates that 20 to 30 percent of Ukraine’s winter wheat, corn and sunflower crops may not be planted or go unharvested in 2022.

To learn more about Division of Agriculture research, visit the Arkansas Agricultural Experiment Station website: https://aaes.uark.edu. Follow on Twitter at @ArkAgResearch. To learn more about the Division of Agriculture, visit https://uada.edu/. Follow us on Twitter at @AgInArk. To learn about extension programs in Arkansas, contact your local Cooperative Extension Service agent or visit www.uaex.uada.edu.

About the Division of Agriculture
The University of Arkansas System Division of Agriculture’s mission is to strengthen agriculture, communities, and families by connecting trusted research to the adoption of best practices. Through the Agricultural Experiment Station and the Cooperative Extension Service, the Division of Agriculture conducts research and extension work within the nation’s historic land grant education system. 

The Division of Agriculture is one of 20 entities within the University of Arkansas System. It has offices in all 75 counties in Arkansas and faculty on five system campuses.  

The University of Arkansas System Division of Agriculture offers all its Extension and Research programs to all eligible persons without regard to race, color, sex, gender identity, sexual orientation, national origin, religion, age, disability, marital or veteran status, genetic information, or any other legally protected status, and is an Affirmative Action/Equal Opportunity Employer.

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Media Contact: Mary HIghtower, mhightower@uada.edu