As the days grow shorter there is lots to consider when we look back at 2022. One issue that raises a lot of blood pressure in eastern Canadian farm country are fertilizer prices. This past year federal tariffs were applied at 35% on Russian fertilizer, which had a real impact on eastern Canadian agriculture. In simple terms, fertilizer prices from specific suppliers that had doubled had another 35% added to it making it that much more brutal.

We’ve all been struggling with the spectrum of inflation whether you live on a farm or whether you don’t. However, when you consider a 250% plus increase of certain fertilizers year over year it tends to stretch the budget and skew cashflow implications. Hearing this past week federal finance minister Chrystia Freeland say that some of this tariff money may go to Ukraine to rebuild their energy infrastructure rubbed many of us the wrong way. Farmers certainly have empathy for what’s going on in Ukraine but using this tariff money instead of giving it back to farmers had the wrong rub. The Grain Farmers of Ontario and other eastern Canadian farm organizations continue to work to get this money back to farmers.

Let’s hope these organizations are successful in their lobbying efforts as the federal government got this wrong. Russian interests were not penalized by this action of the federal government.  It squarely was placed on eastern Canadian farmers. There’s no sense in getting partisan either with this argument, it may have taken place regardless of the political stripe in Ottawa.

All of you need to download the ”Farmers Need Fertilizer Report” commissioned by the Grain Farmers of Ontario which was released on December the 15th.  You can do that by going here https://gfo.ca/government-relations/fertilizer-report/  In this report written by Josh Linville VP of Fertilizer for Stone X, it lays out the different scenarios for what happened in eastern Canada fertilizer prices over the last couple of years. Looking ahead, we’ve got some work to do to try to avoid the price increases we have seen over this time.

In the report it documented how Ontario farmers are much more dependent on imports of two nitrogen sources, urea and urea ammonium nitrate (UAN) from Russia.  In fact, in 2021 nitrogen imported from Russia accounted for 63% of all imported urea and 21.6% of all imported UAN.  Most of the phosphorus that we use in eastern Canada comes from the United States, while the potash of course comes from Saskatchewan.  Over a couple of years forces came together to really put upward price pressure on these fertilizer sources. The 35% tariff at the end of the day was just more pain.

The report talks about US countervailing duties which in effect blocked phosphate imports from Morocco and Russia in 2020. It also talked about the effect of increasing commodity prices increasing the demand for fertilizer as well as shutdowns of fertilizer plants from Covid restrictions which we’re contributing to the fertilizer supply constraint.  The report also talked about hurricane Ida putting severe pressure on the electrical grid with significant damage to production facilities. Then there was the war in Ukraine in February of 2022 and the cut in natural gas supplies coming from Russia to Europe in the summer of 2022. All of this had a tremendous effect on the supply capacity and trade for fertilizer.

To put it in perspective UAN had a 439% increase from June 2020 to June 2022. Urea was up almost 300% in the same time period, with NH3 being up 504%.  At the same time corn wheat and soybeans prices were up over 200%. It doesn’t take a rocket scientist that this scenario gave severe challenge to Ontario farmers as they planted their crops in 2022. Did somebody say sticker shock?

Where do we go from here? In the report the problem stated to expand world production in nitrogen it’s fairly simple, all you need is a reliable source of natural gas and you need to build a facility.  At first glance this would mean that Canada with lots of natural gas, is well placed. However, it will take $5 to $7 billion to get it done and nitrogen is still subject to the vagaries of the commodity market. Clearly, there are risks in this.

The report also offers ways to avoid these problems in the future, with one of them being buying nitrogen from Middle Eastern producers and phosphorus from countries such as Morocco.  It also talks about Canada maintaining an emergency fertilizer reserve and improving our logistics with regard to storage and truck and rail.  It also talks about creating a “Fertilizer Affordability Index” which would trigger a farm level assistance program based on fertilizer costs relative to grain prices.  It also talked about granting an exemption to Russia and Belarus for fertilizer only.  This would help eliminate that 35% tariff and get us back to a freer normal trade flow.

It is interesting to think about for sure, but of course it is a moving target, it will take about $9 billion to build a new nitrogen plant and that means the government will need to be involved. We also know the government’s move at glacial speed. It might have taken a stroke of the pen too put in a 35% tariff from Russia but it’s certainly taking a lot longer to get rid of it.

We’re still a few months off on Ontario from loading fertilizer into our tender units and corn planters.  What we want is some type of return to fertilizer price historical normalcy. As it is now, fertilizer prices have declined slightly but it might be more of the same for 2023.  Thankfully organisations like the Grain Farmers of Ontario and others are working to get there.  Now, it’s the government’s turn.