Iran conflict spikes market volatility

By RHIANNON BRANCH AND TAMMIE SLOUP – FarmWeek 

Military action in Iran continues to impact fuel and fertilizer markets, prompting a nationwide “groundswell of concern from farmers” as planting season nears.

“History teaches us that energy market shocks quickly reach the farm-gate and countries in and around the Persian Gulf account for a large share of fertilizer supplies our farmers rely on, so it’s a serious issue,” said American Farm Bureau Federation President Zippy Duvall.

Illinois Farm Bureau President Philip Nelson met with lawmakers on Capitol Hill last week to stress the need for stable fuel and fertilizer prices. Illinois farmers, he said, are “feeling the pinch.”

“We had a very good conversation with the deputy ag secretary (Stephen Vaden) … in regard to looking to make sure that we’ve got competition in all areas for inputs, and that includes fertilizer, chemicals and seed,” Nelson said. One of IFB’s national legislative priorities is exploring transparency and competitiveness in agricultural input markets to support cost-effective solutions for producers.

The U.S. Justice Department recently launched an antitrust investigation into whether leading commercial fertilizer producers colluded to raise prices, Bloomberg News reported.

The companies under scrutiny include phosphate and potash suppliers Nutrien Ltd. and Mosaic Co., as well as CF Industries Holdings Inc., Koch Inc. and Norway’s Yara International ASA, which collectively control most nitrogen-based fertilizer sold in the U.S. and dominate potash and phosphate markets.

The scrutiny comes after the U.S. fertilizer industry underwent dramatic consolidation over four decades. The number of nitrogen fertilizer producers declined from 46 to 13 between 1984 and 2008, a reduction of 72%, according to USDA data. Today, four firms control 75% of the nitrogen fertilizer market domestically, while two firms control nearly 100% of the U.S. potash market, according to University of Waterloo research.

Grain market analysts are also watching the conflict to see what geopolitical impacts it could have on corn and soybeans in the U.S.

“A lot of us are waiting to see if some of the effects on energy prices and other things could change supply and demand dynamics in global corn and soybean markets,” Joe Janzen, assistant professor of ag economics at the University of Illinois, told FarmWeek at the All Day Ag Outlook hosted by WILL and the U of I farmdoc team.

At the event, two panels of market analysts discussed the state of corn and soybean markets. The Iran conflict was mentioned as a new uncertainty.

“Everyone knows how much oil moves through (that region), but a third of the nitrogen also does,” said Chip Nellinger, founder and partner of Blue Reef Agri-Marketing. “Urea prices are up 20% at the Gulf this week (March 3).”

Ellen Dearden, analyst with AgReview, added: “I do believe that with the price of fertilizers and the availability given the Middle East situation, that we may end up seeing a few more beans being planted than what the (USDA) report out of the Ag Outlook Forum suggested.”

But even before the conflict began, volatility was a concern in the markets.

“I think this year we have a lot more unknowns than what I could ever remember in a long time. More unknowns mean more price volatility,” said Greg Johnson with Total Grain Marketing. “The war going on now just underlies how important crude oil prices are to soybean oil prices, which impacts soybean prices.”

Johnson outlined four major “unknowns” in the soybean market – domestic biofuel policy, energy prices, Chinese purchases and President Donald Trump’s trade strategy.

“I think we’ll have a wider range of bean prices given the volatility this year,” he said. “Normally, we have $1.80 swing from high to low and I could see it being $2 or more. I think we could be anywhere from $10.50 to $12.50.”

The group offered advice to grain farmers in the audience, including having a game plan for offers and connecting with someone outside of your county or state to discuss markets with and gain perspective from.

“You need volatility to have opportunity, but you need a plan to take advantage of the opportunity,” Nellinger said.

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Johnson said while profitability at $11.25 for soybeans is borderline, it is important to factor in government subsidies when marketing.

“Keep in mind, you’re going to get 75 cents from the government between the (Farmer Bridge Assistance) payment and the ARC (Agricultural Risk Coverage) county payment,” Johnson said. “So, if you can get 75 cents from the government and $11.25 from the market, there’s $12 beans.”

 

Push for E15

During meetings in Washington, D.C., Nelson also pushed for passage of year-round nationwide E15.

His visit, March 3-5, included meetings with U.S. Reps. Mary Miller, R-Oakland; Eric Sorensen, D-Moline; Mike Bost, R-Murphysboro, and Darin LaHood, R-Dunlap, as well as U.S. Sen. Tammy Duckworth, D-Hoffman Estates. He also met with USDA Deputy Secretary Stephen Vaden and the White House public liaison’s office.

Illinois Farm Bureau has been working with both sides of the aisle to pass year-round nationwide E15 fuel sales.

“We’re looking at it from a domestic demand standpoint. Right now, we’re struggling with commodity prices, and anything that we can do to bolster demand should help at the farm gate level,” Nelson said.

Prior to his Thursday meetings with Bost and LaHood, who both serve on the E15 Rural Domestic Energy Council tasked with proposing E15 legislation, Nelson said he expected to talk with the congressmen about figuring out a pathway forward with year-round E15.

“We’ve got to get it over the finish line,” he said. “And we haven’t forgotten about sustainable aviation fuel, which could really be a boon for the bean and soybean industry. Going forward, that’s another issue that we should start tackling strategically and long term, that can bolster a domestic demand for our products in both corn and beans, so we’re going to put that on the table as well.”

 

This story was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association. For more food and farming news, visit FarmWeekNow.com.