In ancient Greek legend, there is the story of the Gordian Knot — a knot on an ox cart in the city of Gordium that was so tightly entangled that no one could figure out how to undo it. Although today’s global supply chain may not be quite as knotted up as the legendary Gordian Knot, many market watchers may disagree with this assessment.

“It’s an unprecedented year; a crazy year,” said Joe Dillier, Managing Director for Ameropa North America, speaking at the 2022 Wisconsin Agribusiness Classic in mid-January. “I’ve been in this business since 1989 and I’ve seen years where demand was pulling prices, like in the early 2000s, when natural gas prices connected to fertilizer prices, and I’ve seen years when costs were driving prices. But I’ve never seen a year like 2021, where EVERYTHING was mixed up, both on the demand and supply side!”

Said one speaker at the 2021 Mid America CropLife Association (MACA) annual meeting: “The COVID-19 pandemic turned our businesses upside down, and we are still trying to figure out how to deal with all of this.”

Ag retailers tend to agree with both these views. “One word sums up our biggest concern for the 2022 growing season, and that is supply,” wrote Kathleen Sims, President of Sims Fertilizer & Chemical, Osborne, KS, on the 2021 CropLife 100 survey. “Not only what we sell, but the inputs that are required to get the products to the growers.”

According to that CropLife^® survey, 95% of respondents indicated that they had trouble getting products through the supply chain in 2021, with another 3% saying they had some supply disruptions early that eased somewhat towards the end of the year. Only 2% of 2021 CropLife 100 ag retailers saw “no supply chain disruptions.”

And this ongoing problem is still impacting current agricultural community mood. According to the January 2022 Purdue University/CME Group Ag Economy Barometer, grower sentiment declined six points to a reading of 119 — its second-lowest reading since July 2020.

“Rising farm input costs and ongoing supply chain disruptions appear to be contributing to producers’ weaker perception of current conditions and expectations of their farm’s financial performance in 2022 when compared to last year,” said James Mintert, the barometer’s principal investigator and Director of Purdue University’s Center for Commercial Agriculture.

According to Mintert, disruptions in the supply chain for many farm inputs, coupled with strong demand, are pushing production costs higher. Fifty-seven percent of survey respondents in January said they expect farm input prices to rise by 20% or more in 2022, and 34% of producers said they expect prices to rise by 30% or more.

Furthermore, added Mintert, the disruptions extend not just to input pricing, but also input availability. “In the January barometer, 28% of producers responding to the survey said they have had difficulty purchasing crop inputs from suppliers for the 2022 crop season,” he said. “In a follow-up question posed to producers experiencing difficulty in procuring crop inputs, respondents reported difficulty in purchasing a broad spectrum of crop inputs including herbicides, insecticides, fertilizer, and farm machinery parts.”

How Did We Get Here?

Blame it on two simple words usually associated with market economics and pricing: Black swans, defined as uncommon or unusual events that have a direct, unanticipated impact upon whatever market they tend to target. For the agricultural supply chain, the first of these took place back in 2020 when COVID-19 first reared its ugly head, disrupting the normal flow of products from overseas producers to the U.S.

“Right now, there are massive shortages,” said Spencer Vance, North American President for Albaugh, LLC, speaking at the 2021 MACA meeting. “When COVID first hit, everything shut down, and it’s taking a long time to get shipping containers, ships, and port operations back up and running again. Naturally, this has caused a massive increase in the costs to get a shipping container anywhere in the world.”

Robbie Upton, Director, Marketing-U.S. Crop at BASF Agricultural Solutions North America, agrees. “Supply chains that support agriculture and our businesses have been stressed for nearly two years due to a variety of factors, including labor shortages, transportation availability and delays, natural disasters affecting raw material supplies and COVID-19,” he says.

To appreciate just how complicated the supply chain for agricultural inputs has gotten, consider what’s happening with fertilizer. According to Ameropa’s Dillier, the rollercoaster for fertilizer began as the calendar turned to 2021. “Urea was selling for $250 per ton at the start of 2021, but it went up almost immediately thereafter,” he said. “By spring, the prices really jumped, to $625 per ton. In a normal year, these would have dropped as the spring season ended. But that didn’t happen in 2021. By fall, urea was selling for more than $750 per ton.”

According to Josh Linville, Director of Fertilizer for StoneX, other crop nutrients also jumped significantly in price over the past 15 months, including UAN (up 380%); anhydrous ammonia (up 384%); phosphate (up 190%); and potash (up 263%).

A new report compiled by the Agricultural and Food Policy Center (AFPC) at Texas A&M University suggests increases in fertilizer prices may not be done. Joe Outlaw, AFPC Co-Director, recently told farmers at the Blackland Income Growth Conference in Waco, TX, that fertilizer prices could escalate as much as 80% this year — a significant jump from a predicted 10% increase last August in a University of Missouri Food and Agricultural Policy Research Institute forecast.

The report, which was compiled from a study initially requested by U.S. Rep. Julia Letlow (R-LA), highlights the impact on both fertilizer availability and price. Any way you look at the numbers, you probably won’t like what you see, despite high market prices for cotton and other commodities.

“The current farm safety net is not designed to address these types of rapid production cost increases, which will continue to be a growing concern for farmers across the country, creating an emerging need for assistance,” adds Outlaw.

Multiple Storms

And the reasons for some of these wild upward swings in fertilizer and chemical prices can be tied back to numerous black swan events during the second half of 2020, starting with the Derecho storm that hit parts of the Midwestern U.S. in July of that year. As a result, it caused crop prices to jump, and fertilizer demand began to spike.

Hurricane Ida came next, hitting the Gulf Coast and disrupting power for weeks to fertilizer and chemical plants in the region. Add to that the Polar Vortex in February 2021 that caused serious problems with the Texas power grid, taking manufacturing and refining facilities offline and slowing production of products commonly used by agricultural producers. Then Hurricane Ida came along in August 2021, hitting the Gulf Coast and disrupting power for weeks to fertilizer and chemical plants in the region — including Bayer’s main glyphosate production plant.

In the short term, glyphosate supplies grew scarce, and prices quickly increased up to 300%. In addition, other popular products were also suddenly in short supply.

According to StoneX’s Linville, all of these factors combined proved too much for the agricultural supply chain to manage. “All of this stuff dropped last year, and it was problem after problem after problem,” he says. “Every time something happened, it resulted in a further screwed up supply chain.”

The Outlook for 2022

Even with some “normalcy” and storm-impacted production coming back online, market watchers anticipate that things will remain challenging when it comes to the supply chain. “Like many other industries, we anticipate the rise in raw material costs and supply chain disruptions will continue to impact the agriculture industry going into 2022,” says Eric Vogel, Product Marketing Manager, Koch Agronomic Services.

And that, says Dr. Peter Dotray, Professor of Weed Science at Texas Tech University and Texas A&M AgriLife Weed Specialist, means growers need to have alternative weed control strategies ready to go when or if needed.

“Will availability be an issue?” asked Dotray during a recent webinar on weed control strategies. “The answer is yes. There are some things that growers and applicators should be thinking about. We have some challenges in front of us. This is a not-so-perfect storm. But it seems like things may be more challenging before they get better.”

If products are indeed in short supply, Dotray’s message is simple — don’t cut rates.

“I see big risk in that temptation,” he says. “Different strategies are going to be needed. Growers will need to continue to prioritize areas of highest yield potential and/or their weediest fields. We may see some older chemistries like Staple coming back, but we may have to refresh our memories in terms of rotation restrictions. And likely, we’re just going to see different results as we decrease inputs or are forced to go to input strategy two or three.”

Scott Kay, Vice President, U.S. Crop Protection for BASF Agricultural Solutions North America, says his company is taking several steps to address the agricultural supply chain issue. This includes increasing production on high-demand solutions; adding a formulation production site this spring to improve glufosinate availability; expediting air freight to alleviate seaport backlogs in the supply chain; and investing $260 million in North America to improve reliability and increase production capacity.

Despite these moves, most of the nation’s ag retailers are preparing for a challenge supply chain year in 2022. According to 60% of respondents to the 2021 CropLife 100 survey, supply chain disruptions (and the subsequent cost increases associated with many hard-to-find items) will remain a major obstacle to the nation’s top ag retailers achieving profits this year.

“The aberrations in the supply chain in 2021 were manageable; it just took a little more effort than in previous years,” says Adam Lovelace, Vice President of Farm Centers at The Andersons, Maumee, OH. “The current outlook for potential disruptions in 2022 appears to present a much more challenging environment.