The Russian invasion of Ukraine has already had a significant impact on the global economy. In a recent article on this site, Dr. Aaron Smith explored the grain and oilseed market implications of the conflict. As significant as these are, they are not the only market disruptions of concern to the agricultural sector. Russia is a major producer of energy and fertilizer, key inputs across the entire agriculture industry.
According to data from the U.S. Department of Energy, Russia is the third largest energy producer in the world and a significant source of oil and petroleum products for the U.S. In 2021 the U.S. imported a total of 2.23 billion barrels of crude oil. Only about 3% (72.6 million barrels) of this came from Russia – still enough to make Russia our fourth largest source of foreign oil. Russia’s share of imported refined products is considerably larger than its crude oil market share. In 2021, the U.S. imported 860.9 million barrels of refined products. Russia supplied 20% (172.6 million barrels) of those imports, making that country our second largest foreign source of refined products (behind Canada). Given Russia’s status as a major petroleum provider, it is not surprising that the sudden isolation of that market in response to the conflict has affected fuel prices. For the week ending March 14, the U.S. average retail gasoline price (all grades, all formulations) was a record (in nominal terms) $4.414 per gallon, eclipsing the previous high from the summer of 2008.
Russia is also a global leader in fertilizer production and exports, as shown in Figure 1. Russia dominates global exports of urea and ammonium nitrate. According to World Bank data, in 2018 (most recent complete data) Russia accounted for 17% of all urea exports and 40% of all ammonium nitrate exports. With respect to ammonium nitrate, the second largest exporter (the EU) accounted for just 7% of world exports. In 2018, Russia was also the third leading exporter of potash, accounting for just over 17% of world exports (far behind Canada’s 43% export share).
To be fair, fuel and fertilizer prices were on the rise well before the onset of hostilities in Ukraine. Retail gasoline prices have increased steadily since their pandemic-induced low in April 2020. Fertilizer prices began a steady march upward beginning last summer, topping out late last year before retreating in the first quarter of 2022. But the effects of the Russian invasion – extensive sanctions on Russian products, loss of access to the global financial system for Russian companies, and the disruption of Black Sea trade routes – have reinforced and accelerated the inflationary trend on fuel and fertilizer.
For farmers, the market impacts of the conflict in Ukraine will make a high-cost year even worse. Farmers had already planned for expensive fertilizer, and fertilizer purchases for the new crop have likely already mostly been made. Rising prices for nitrogen may yet be a problem for some producers, and it seems possible – given global reliance on Russians supplies of nitrogen – that availability of nitrogenous fertilizers may become limited if the conflict drags on. Fuel prices are going to be far higher than most planning budgets assumed, cutting into expected margins, particularly in more energy-intensive production systems (e.g., irrigation-intensive crops like rice). The commodity market reaction to the conflict has created an attractive pricing opportunity on some crops, but this early in the production cycle – with planting barely underway – the decision of how aggressively to forward price can be a difficult one.
Figure 1. Major Exporters of Selected Fertilizer Products
References and Resources
U.S. Department of Energy, Energy Information Administration Petroleum market data: https://www.eia.gov/petroleum/
World Bank, World Integrated Trade Solution On-line Database International trade data by harmonized system (HS) code: https://wits.worldbank.org/country-indicator.aspx?lang=en
Anderson, John D. . “The Russia/Ukraine Conflict and Farm Input Markets“. Southern Ag Today 2(14.3). March 30, 2022. Permalink
