It seems like every few months there is a new story about a shortage of something in America. Things like eggs, chicken and baby formula were all in the news this past year with fears of shortages. The COVID-19 pandemic triggered several shortages in early 2020.
This potential shortage, however, is not just caused by the lasting effects of COVID-19, but rather a multitude of reasons. There are several factors that go into a food shortage, almost all are out of the average farmer’s control.
The production of corn spans through many different intersecting industries, and if this potential shortage does happen, the results will be catastrophic. 2022 was one of the most unstable and unpredictable in terms of prices. While the prices may seem to be stabilizing in the off season, there is no telling what might happen when it comes time to harvest. Corn may be up next on the list of potential food shortages, experts may fear.
Corn Is King
Corn is the most widely planted crop in America, with over 90 million acres dedicated to its cultivation in 2022, according to the United States Department of Agriculture. Ohio is ranked 8th in the country in corn production. Ohio produces around 147 million tons of corn, just about 30 million more tons than the third leading corn producing country, Brazil.
There are roughly 77,000 distinct farms in the state of Ohio, and the vast majority of them grow corn. The corn grown on these farms are mainly field corn, or corn used for manufacturing other goods. This corn is harvested and refined into things like ethanol, corn syrup, other manufactured goods and animal feed. Corn is used as a precursor or building block for almost all of America’s agriculture, between fattening hogs for slaughter, to feeding dairy cows to produce milk.
In Hardin County right now, the typical price of corn is sitting right around six dollars a bushel, which is a very comfortable price for most farmers. Some Hardin County farmers had their best harvest ever according to Mark Badertscher, an educator from The Ohio State University Extension Office. Others had a below average harvest.
“Some of the farmers claim that they had the best crops they’ve ever raised…some of the other areas didn’t get the right rain during the growing season.”
Mark Badertscher describing the 2022 Hardin County harvest
Even in an area as small as Hardin County, there was still variation in how profitable the 2022 harvest was.
The War and Nitrogen
In order to support corn growth, farmers must purchase and use fertilizer. Specifically for corn, nitrogen fertilizer is most commonly used.
The use of nitrogen fertilizer boosts yields for all sorts of crops like corn, Winter wheat, Spring wheat and cotton. According to the USDA, farmers fertilize corn the most in the Spring season, using 50% of nitrogen compared to other crops. Nitrogen fertilizers come in multiple forms, such as ammonium nitrate and ammonium sulfate.
Nitrogen fertilizer has always been more expensive per ton than corn. The price difference between the two has skyrocketed in the past year. The difference in price peaked in August of 2022 at $341.8 per ton, compared to $128.9 per ton back in August of 2020.
What causes this massive spike in price? A few reasons. There are obviously still lasting effects from the COVID-19 pandemic. Assorted supply chain issues have popped up to disrupt the prices. The main reason, though, is the Russia-Ukraine war.
In 2019, Russia was the global leader in nitrogen fertilizer export, holding 12.6% of the market share. The Russian global market share has since dropped significantly, due to sanctions placed after the start of the Russia-Ukraine war.
Potash, a crucial component of potassium based fertilizer, is also primarily exported by Russia, second only to Belarus and Canada. Russia is the world’s leading producer and exporter of fertilizers as a whole, however.
Fertilizer helps ensure a farmer’s crop stability. By shaking up the supply of fertilizer, uncertainty begins to creep in. The less available fertilizer is, the less stable a crop harvest will become.
Petroleum is Behind It all
Petroleum and natural gas are absolutely essential in most industries, but even more so in farming. From powering machinery to providing heat for livestock and being used, these fuels offer numerous benefits to farmers. The issue arises when
Natural gas is the first ingredient in the production of all nitrogen fertilizer. Through simple chemical and mechanical processes, the natural gas is refined into a cost effective fertilizer.
The most obvious use of petroleum on farms is fuel for the equipment. Just like someone would fill up their car with gasoline, farmers fill up their equipment with diesel. Diesel is made from crude oil, which is mainly produced in, you guessed it, Russia.
Similar to how fertilizer prices spiked in August of 2022, diesel prices jumped to record highs at that same time. Diesel prices reached a nationwide average of $5.70 per gallon, a whole dollar higher than the 2008 recession. The price has been on a slight decline since then, but there is no telling if this trend will continue.
Diesel does not necessarily have to be made from crude oil imported from other countries, it can also be made from biomass. Biomass can be made from many different things, but corn is typically the main ingredient. Similar to how gasoline today has some ethanol mixed in, diesel can do the same with B20 biodiesel (20% biodiesel), all the way up to B90 or B100 (90% and 100% biodiesel respectively).
If everyone relied on biodiesel though, the market could get stuck in a closed feedback loop. If corn prices go up for any reason, biodiesel goes up, which in turn causes corn prices to go up.
Not Bad News Just Yet
When the price of petroleum rises, for whatever reason, the price of everything else follows. For corn farmers, this doesn’t necessarily mean bad news, as the price of corn also increases.
“The fertilizer prices are still high, input prices are still high, but grain prices are still high, so the farmers are doing alright.”
(Quote/Mark Badertscher on the universal increase of prices)
Should the expenses get too high to where profit is impossible, most farmers are still financially protected. Farmers can opt to purchase insurance for their crops, which functions the same as something like car insurance.
Secondary Effects of the Price Increases
While it is not necessarily a bad thing if corn prices go up for corn farmers, the financial strain might get passed along to other industries or the consumers. While corn itself is a staple of the American diet, the effect can still be felt by consumers in non corn products. If corn prices go up, typically secondary products like beef, milk and cheese also increase. This is because all of these products rely on animal feed. As animal feed costs rise, livestock producers may pass those increased costs onto consumers, impacting the food prices further.
In states like New York, where milk and milk products are the top export, the price shift can be felt. In Syracuse, NY, where major milk producers like Byrne Dairy are located, the average price for a gallon of milk went above $4.00 for the first time ever in August of 2022. While that is not that bad compared to other stats, it still is very high for a place that has an abundance of milk in the surrounding areas.
“When the corn prices get extremely high, one of the things that cattle producers might do is they might back off their production. They might produce less milk or they might thin out their herds until it becomes more profitable.”
(Quote/Mark Badertscher on the tactics of dairy farmers during price insecurity.)
While 2022 was arguably the most unstable year in history for prices in the farming industry, 2023 is on track to fall back to at least some stability. Talia Priore, New Jersey FFA president and dairy farm hand, is hopeful for this upcoming year. She believes the price trends will continue to fall and stabilize into 2024.
“Last year was definitely a stressful year for the dairy industry. Feed prices reached a price I’ve never seen before. This year is looking promising. Hopefully prices continue to fall and milk demand stays high”
Talia Priore on the price increases in the dairy industry