How Russian-Ukrainian conflict may impact crop insurance decisions before the March 15 deadline
I watched a webinar recently presented by three University of Illinois ag professors via the Farmdoc website. The point of the webinar was to give producers an update on how the Russian-Ukrainian conflict may impact commodity prices and crop insurance decisions before the March 15 crop insurance deadline.
Farmers who were participating in the webinar were concerned about many things including rapid inflation, supply chain disruptions, recession in the United States, and the Russian invasion turning into a wider conflict. In fact, over 90% of the webinar participants polled felt that inflation was a major concern.
The presenters believe that the worldwide wheat supply will be impacted far more than other crops. Russian Federation and Ukrainian wheat accounted for nearly 30% of worldwide wheat exports during the last five years on average. Russia is the No. 1 wheat exporter in the world, and Ukraine is fifth. They account for a smaller but still significant portion or corn exports, at around 17%. (Soybean exports from those two countries were only 2% of worldwide exports.)
If the breakdown of relations continues between Russia and the West, Russian and Ukrainian wheat supplies may be sold only to countries friendly toward Russia. This will obviously change who is buying wheat from whom in many ways, and Russian tanks driving around on the Ukrainian winter wheat crop is not going to help global supply for 2022.
Fertilizer prices rising around the world
The presenters said that fertilizer prices were rising around the world, and supply shortages of fertilizer could spell trouble for certain countries. Surprisingly, Brazil gets over 90% of its nitrogen and potash from imports and about 75% of its phosphate. And, a large portion of those fertilizers comes from Russia and China.
The U.S. is only importing 9% to 12% of its nitrogen and phosphate, but we’re importing 93% of our potash. Thankfully, 83% of that is coming from Canada and only about 12% is coming from the combination of Russia and Belarus, which is basically controlled by Russia.
The Farmdoc folks stated, “fertilizer shortages are real,” and they expect high fertilizer costs at least through 2023. Some producers have locked in lower fertilizer prices in advance of this planting season, but I have to wonder if all supplies will be where they are supposed to be when they’re supposed to be there (regardless of legal contracts).
Anhydrous ammonia, which requires natural gas, has roughly doubled in price per ton during the last year. This obviously raises current year corn production costs. However, the presenters said that corn prices and expected yields mean that corn is the favored crop in all areas of Illinois, in spite of nitrogen supply concerns.
During the webinar, producer participants were polled, and 58% of them expected no change in their planting strategies for 2022. This makes sense because it’s getting late in the season to change plans.
What does all of this mean for crop insurance?
The presenters said that insurable prices are high, which favors revenue protection crop insurance. Insurance premiums are up due to higher grain prices but worth it to cover the risk. They suggested the way to play crop insurance this year is to get 75% to 85% coverage on a revenue protection policy. You can plug in different variables and figure out what makes sense for your operation using a slick crop insurance evaluator tool that you can find at farmdoc.illinois.edu under the heading “Tools.” They have six different crop insurance tools, and many other helpful products, including details of CBOT futures pricing.
Bottom line: The world is changing more rapidly than we’ve seen in decades, and you’re going to have to be nimble with planting, purchasing, and insurance decisions.