The Margin Squeeze: Plan Now For Higher Input Costs in 2022

Inflation set up shop in consumer’s homes during 2021, siphoning funds quietly out of the backdoor. In July, the Labor Department’s Consumer Price Index found costs for apples and milk rose 6% versus the past year. Meat prices were up nearly 11%.

Analysts say farmers can expect the same type of price increases and pressures for crop inputs in 2022.

“There’s an availability issue, which is going to continue into 2022,” says Samuel Taylor, executive director for RaboResearch.

Leaders the world’s largest input companies report material and freight costs continue to be high and farmers should expect prices to be up in 2022.

“A lot of things are going to be more expensive, whether it’s fertilizer, equipment, input costs or seed,” says Garth Hodges, vice president of North America seeds with BASF.

Ultimately that means even if commodity prices remain high in 2022, costs are going to eat into margins.

FERTILIZER FINANCIALS

Fertilizer saw significant price increase in 2021 including a 50% increase for farmers in some states. “Broadly speaking, with fertilizers, you might see another 25% to 40% increase in costs,” Taylor says. “Similar to last season, monoammonium phosphate (MAP) is going to be a much less available product than diammonium phosphate (DAP).”

Taylor believes in 2022, despite higher prices, farmers will ultimately keep nitrogen application rates steady. But they might use lower rates of products such as phosphate and potash to help manage margins.

CROP CHEMICAL COSTS

“If your supplier has it in stock, buy it now,” was the mantra for crop chem in 2021. “The supply chain dynamics in ag chemistry just seem to be persisting,” Taylor says.

Higher raw material, energy and freight costs are likely to keep chemistry prices up next season, Taylor says. Business dynamics are also at play in China, where many chemicals and molecules are manufactured.

“The Chinese government is trying to do as much as they can to lower their own cost of production,” Taylor says. “There are whispers of export tariffs or actual bans that could create ripples into the North American market and translate into higher costs or lower availability.”

What happens in chemistry may also impact seed selection.

“We realized growers often make their seed decisions based on their confidence in the availability of the companion chemistry,” Hodges says. “We’re constantly trying to make sure products are available.”

SEED COSTS TO RISE

While weather impacts to corn and soybean seed production have been limited, costs are going up. Taylor expects a 7% to 10% increase in 2022.

“It might be as high as 12% on corn seed,” Taylor says. “While I expect an 8% to 9% increase on soybeans.”

During the second quarter financial call with investors, Liam Condon, president of the Crop Science Division at Bayer discussed pricing for 2022: “On corn ... for last season, everybody had priced ahead of the run-up and commodity prices and now we have the opportunity in the new season to price again,” Condon says.

Bayer officials add farmers will likely see a combination of small price changes with some products increasing while others decrease. They say value is key and the company knows it’s important to stay competitive in the market.

PLACE ORDERS EARLY

Mitch Heisler, product and agronomy manager at Wyffles Hybrids, says they’re expecting average- to better- than-average corn seed supplies for customers in 2022. That said, supply chain and logistics issues have had to be part of their seed pricing equation.

“It has caused farmers to think about things differently by making timely decisions and securing what they need earlier in the process,” Heisler says.

His advice: Place orders early for your top varieties or hybrids.  

RELATIONSHIPS MATTER

Heisler suggests that decisions start at harvest as farmers evaluate disease and pest pressure. Any challenges operations faced in 2021, that may be an issue in 2022, should be under consideration now.

“Growers are actually making purchasing decisions on the combine, because they're seeing what's working, and what's not working on a farm,” says BASF’s Hodges.

He says those good relationships farmers have with their suppliers may be more important than ever in 2022.  

"We realize a lot of this business is built on relationships,” said Hodges. “This year is about making use of your relationships to ensure you are prepared and ready for any challenges that may come during the season.”