While nitrogen fertilizer and diesel fuel are the big-ticket items getting the most attention, the cost increases will extend much further.

Farmers are considering various strategies to minimize the economic damage for this year and the years to come.

Fortunately, farmers in Western Canada had most of their nitrogen fertilizer locked in ahead of the dramatic escalation caused by the war in the Middle East. What isn’t widely appreciated is the war’s impact on other fertilizer types, including phosphate.

Breaking down fertilizer impacts

Mario Gaudet, a senior account manager with Alberta-based BiziSul, which supplies elemental sulfur, used a recent webinar hosted by Dan Aberhart to explain the sources of sulfur and the role it plays in all sorts of manufactured products.

Sulfur is a byproduct of oil refining, which accounts for 80 per cent of the world supply. About 40 per cent comes from the Middle East, and, like nitrogen, was blocked for weeks at the Strait of Hormuz.

Gaudet says that over the last year-and-a-half, the price of elemental sulfur has increased from US$70 per tonne to around $580.

Sulfur is needed to produce sulfuric acid used in battery production as well as the refining of lithium and many other metals. Sulfuric acid is also a necessary ingredient to turn phosphate rock into phosphate fertilizer.

Monoammonium phosphate, 11-52-0, was already expensive and hasn’t escalated like nitrogen. However, with the high cost of sulfur and the high cost of the nitrogen component in the fertilizer, it’s difficult to imagine MAP prices coming down anytime soon.

Nitrogen strategies

What should the strategy be next summer and fall if the price of urea is still $1,000 or more per tonne? Should you plan to stock up for 2027? Will the ceasefire hold? Will fertilizer manufacturing and distribution be catching up?

Nitrogen is usually less expensive in the summer and fall.

While nitrogen stabilizers cost money, more producers might now consider using a stabilizer and spreading fertilizer in the fall.

The cost of a stabilizer is often relatively small compared to the usual price increase ahead of spring. Applying in the fall also means you don’t have to store the product.

While producers are used to pricing fertilizer in advance of seeding and most have a significant amount of on-farm storage, diesel storage is a mixed bag.

Some producers have significant storage and try to time purchases to save money. Others just get regular bulk deliveries as needed.

While nitrogen tends to follow a predictable price pattern most years, diesel fuel would seem to be more erratic.

However, following the onset of the war, a spike in prices would have been a reasonable expectation. Those with the storage to stock up saved a lot of money.

Another advantage to having extensive diesel fuel storage is the ability to obtain a lower price for taking an entire tanker load at a time. Of course, buying a large amount at the wrong time would lock in an even-larger loss.

The high cost of petroleum will manifest itself in the prices for crop protection products.

Yes, many chemistries are off patent and generics have decreased price levels, but it’s now more expensive to manufacture all petroleum-based products. Even the plastic jugs cost more. Buying in advance was a good strategy.

With the high input costs and outlook for compressed margins, producers are unlikely to be bullish on equipment upgrades. That’s one area where they can exercise more discretion.

Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by email at kevin@hursh.ca.

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That reliability begins with the powertrain.

Having been around for more than a century, internal combustion engines are likely to remain essential in farm machinery for many years to come, but it begs the question: what could come next?

FPT (Fiat Powertrain Technologies) has dedicated some of its time and energy to answer that question. It’s been designing and manufacturing a variety of powertrains since 2005, as well as serving the agricultural equipment market.

Look under the hood of major farm equipment brands such as Case IH, New Holland and Claas and you’ll find an FPT engine at the heart of those machines.

“We have a strategy that we call the dual pillar strategy that is really focusing both on the internal combustion engine and in the improvement of the diesel,” Michele Lopez, product manager with FPT, said at the Agritechnica farm equipment show in Germany last fall.

Exploring alternatives

While fossil fuel-powered engines have been the bread and butter for FPT since its inception, the company recognizes that research and development in alternatively powered engines could be a path to the future.

“There are definitely market niches where we can exploit this type of technology,” said Lopez.

On the show floor at Agritechnica, FPT displayed the proven design of its diesel-powered N67 engine. It can also run on hydro-treated vegetable oil, which reduces emissions by as much as 90 per cent.

According to the FPT website, more than two million N-series engines have been built across the agricultural sector since its inception in 2001.

Lopez said farm operations with an on-farm biomethane digester would be a “sweet spot” opportunity for its N67 engine, which can also run on natural gas.

FPT has also designed engines that can run on methane and other alternative fuels.

“Of course, it’s a new technology. There will be early adopters … but we’re there to support,” added Lopez.

“The message that we want to share with the OEMs and the farmers is, we got your back.”

With diesel being the workhorse fuel in the field for so many years, does FPT think producers are ready to transition to alternative fuels?

Lopez said curiosity for alternative power types is building in the sector. Hybrid engines are likely to have the most appeal for farmers in vineyard and orchard sectors.

Forma on farms

He said the company’s F28 hybrid concept engine is a good example of the type of duties it could perform in those sectors. It operates in both low-voltage and high-voltage settings and could be capable of performing a variety of tasks.

FPT also had a modular battery pack concept called Forma on the show floor at Agritechnica.

Lopez said the company worked closely with OEMs to design the best shape to help position its battery pack concept as a power source for an electric-drive machine.

“This is something we really put our effort in the last years in terms of innovations to support again, the farmers with new technologies that are improving, both from a sustainability standpoint and a TCO (total cost of ownership) perspective,” said Lopez.

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Canola “has found a level where it’s stabilized, but there’s not a lot of life right now,” said Ken Ball of PI Financial in Winnipeg, adding that “all canola needs is a little spark, and it’s just not getting it right now.”

With seasonal harvest pressure slowing down and crush margins historically wide, Ball expected canola futures could be due for a move higher.

However, he added, speculators were still leaning on the short side of the market and showing a reluctance to buy.

“It will need some help from (soy)bean oil,” said Ball on what could trigger a sustained rally in canola.

However, while he expected that market should be stabilizing, recent losses in crude oil and diesel were bearish.

From a chart standpoint, the November canola contract has found support at around $710 per tonne, with $725 acting as nearby resistance.

— Phil Franz-Warkentin is an associate editor/analyst with MarketsFarm in Winnipeg.

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In August, the NFU released the third edition of its Agriculture Greenhouse Gas Emissions in Canada report. It reflected updated information from the latest national inventory that the federal government released this year.

Why it matters: Farm greenhouse gas emissions are a hotly debated topic in agriculture.

The 2023 inventory report contained several methodology changes, the NFU said. In particular, it drew attention to new values for “crop residue C input.” Those new values stemmed from recalculations due to new data from the 2021 Census of Agriculture.

All told, “trendline average soil carbon sequestration in 2020 and 2021, from all sources and causes, is up about 10 percent,” the NFU said.

Soil carbon sequestration is estimated at 22 million tonnes per year of carbon dioxide equivalent, up from 20 million tonnes suggested in the 2022 inventory report.

Environment and Climate Change Canada also changed the way it models on-farm fuel use and associated emissions.

The exact nature of that change isn’t clear, said Darrin Qualman, author of the report and the NFU’s director of climate crisis policy and action. Attempts to clarify with ECCC weren’t fruitful, he added.

As best he could tell, prior to the 2023 national inventory report, the ECCC said tillage reduction was leading to generally consistent fuel use year to year. A graph in the NFU report shows emissions from on-farm diesel fuel use fluctuating between eight and ten million tonnes per year from the early 2000s to present.

Based on lengthy quotes from the inventory report in the NFU report, ECCC appears to have decided this assumption was incorrect, and rebalanced the way it splits use of fuel between on-road and off-road vehicles, including use of farm equipment in the field.

As a result, emissions from on-farm diesel use climbed steadily from 1990 until the late 2010s instead of being relatively flat, according to the EEEC. Emissions begin to drop again between 2018 and 2021, but still remain slightly above the projected emissions from the previous national inventory.

Qualman said the macro trends remain the same, regardless of the minutiae.

“We’re not uncertain about the trend line,” he said. “As we’ve dramatically increased fertilizer tonnage, we’re not uncertain as to whether the emissions have gone up or down. We’re certain that the emissions have gone up.”

There is uncertainty, but Qualman said that uncertainty is not the same as saying they don’t know if emissions are significant.

“We just have a little question about where they are in absolute terms,” he said.

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And while that move was bullish for the markets, by how much remains to be seen, said Phil Flynn of the Price Futures Group in Chicago.

“It’s probably put a floor under the price of oil,” Flynn commented. “The question is how high will it go?”

Reports said that in addition to the Saudi cut, the rest of the 23-member alliance would reduce its output by a net 400,000 BPD.

To justify the cut, Saudi Arabia said there’s a looming supply glut in the global oil market that’s already contending with weaker prices.

Flynn said crude oil modestly increased but there were still issues, noting there continued to be tensions within OPEC and OPEC+.

As the week of June 5 started, prices for Brent Crude and West Texas Intermediate gained more than $1 per barrel. However, by mid-afternoon that Monday those gains faded to well below 50 cents per barrel (all figures US$).

Prices are “struggling because the Saudis made some comments…that they’re fed up with OPEC members who aren’t meeting their oil output goals,” Flynn explained, pointing to some of the cartel’s African members.

Also, Flynn said another report on Monday indicated Russian oil loadings at the country’s western ports hit a four-year high in May, as they produced as much as they could and sold it at a discount.

“The Saudis are calling for more transparency from the Russians as to how much oil they are producing,” he added, pointing to Russia previously promising its OPEC+ partners it would reduce its output.

As for Saudi Arabia, Flynn stated the kingdom believes it can push up oil prices and not hurt its share of the global market.

However, he said the current market has been nervous and pessimistic as to what could come down the road. Otherwise the oil market normally looks ahead to see what could transpire.

“They’re erring on the side that demand is going to fall off the map even though that hasn’t happened yet,” Flynn said, noting that supplies remain tight.

North American prices will climb upward again, he added, suggesting gasoline in the United States could reach $5 per gallon.

“But I think the market is going to need a little convincing in the days ahead as to whether the economy can stand this production cut and see if inventories really tighten,” Flynn said.

One wildcard he cited was Russia, as it likely wants to avoid a price war with Saudi Arabia.

“If they don’t keep the Saudis in their back pocket this turns into a price war, and neither one of these countries are going to win,” Flynn emphasized. “But the jury is still out as to whether the Russia can comply.”

It’s estimated OPEC+ is responsible for 40 per cent of the world’s crude oil. The alliance is comprised of the 13 members of the Organization of the Petroleum Exporting Countries and 10 additional members including Russia, Mexico and Kazakhstan.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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The agricultural commodities trader has not altered its own capacity plans due to a U.S. government proposal on biofuels announced last week, Heckman said on a webcast. “Demand is up,” he said.

Under the plan, announced by the U.S Environmental Protection Agency, oil refiners will be required to add 20.82 billion gallons of biofuels to their fuel in 2023, 21.87 billion gallons in 2024 and 22.68 billion gallons in 2025.

Some analysts said the proposal’s increase in the amount of biofuels that refiners must use was not as great as they expected — a view that has pressured shares of Bunge and rival ADM.

The proposal “calls for a surprisingly low amount of growth” in the requirement for biofuels use, JP Morgan analysts said in a note on Tuesday. The sector could have an oversupply of renewable diesel and delays or cancellations by companies of capacity expansion without large enough mandates, the firm said.

“It’s sure not affecting us,” Heckman said of the EPA proposal. “We’ve been making our analysis for the long term.”

Bunge and Chevron formed a joint venture last year and announced plans to expand capacity by 2024 at Bunge facilities in Illinois and Louisiana that crush soybeans, which can be used to produce soy-based diesel.

Separately, Heckman said it makes “complete sense” for China to add Brazil as a supplier of corn, a move that threatens U.S. grain exports to China. Chinese customs updated its list of approved Brazilian corn exporters last month, including facilities owned by Bunge, ADM and others.

In Ukraine, the war has likely been a “net positive” for Bunge because the company has needed to manage more risk for customers, Heckman said. An agreement to maintain an export corridor for Ukrainian grain has helped bring down food-price inflation, though capacity has not returned to pre-war levels, he said.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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Suncor replaced its CEO in July and agreed to review its retail fuel unit by the end of this year after Elliott Investment, which owns three per cent of the company, pushed for changes, flagging a poor safety record and lacklustre stock performance.

But Canada’s second-largest oil producer decided against selling its fuel stations business after a review that included gauging interest from third parties.

Earlier this year analysts estimated the unit could be worth $5 billion to $11 billion. Suncor owns 1,600 Petro-Canada stations accounting for 18 per cent of Canada’s retail fuel sales, making the business one of the biggest in the country.

Petro-Canada’s operations also include bulk fuel delivery for farm and industrial customers across the country, as well as lubricant supply for farm, construction and transport equipment.

“The board unanimously decided it’s in shareholders’ best long-term interests to retain retail and continue to optimize the network to enhance cash flow and value generation,” interim CEO Kris Smith said during an investor day presentation.

Calgary-based Suncor also released its 2023 capital budget on Tuesday, forecasting higher capital spending while production remains nearly flat.

The company said it would focus on improving the retail fuel business through expanding partnerships with non-fuel businesses such as quick service restaurants and convenience stores.

“We do not see the retail segment as being an issue operationally and believe the asset provides outsized strategic value within the existing organizational structure,” National Bank analyst Travis Wood said in a note to clients.

Elliott did not immediately respond to a request for comment.

Suncor has made a number of other major changes since the activist firm took aim at the company, including replacing its CEO and some board members, selling renewable energy assets and taking steps to improve safety and operations at oil sands sites.

Smith told investors the new CEO search was expected to conclude in the first quarter of 2023.

Industry analysts were broadly positive about Suncor’s decision to hold on to its retail fuel business, but warned higher operating costs in 2023 could weigh on shares.

Suncor said oil sands costs would rise as it starts a three-year plan to improve performance at the troubled Fort Hills oil sands mine in northern Alberta, while inflation was also impacting the ability to reduce costs.

— Reporting for Reuters by Nia Williams; additional reporting by Ankit Kumar and Mrinalika Roy.

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U.S. refining capacity has declined in the last two years, as plants shut during the outset of the coronavirus pandemic, causing prices to spike. Several plants are being converted to facilities that can produce cleaner-burning renewable diesel, but at least for now, those facilities will not fully replace those refined barrels.

There are at least 12 renewable diesel projects worth more than $9 billion under construction, with another nine proposed (all figures US$). The 12, along with existing plants, are expected to produce about 135,000 barrels per day (bpd) of renewable diesel by 2025 according to EIA data, from around 80,000 bpd now.

However, since 2019, diesel production capacity has dropped by about 180,000 bpd total, according to the U.S. Energy Information Administration, and at least one more U.S. refinery is set to close next year, further reducing output. In addition, those refiners set to produce renewable diesel will also no longer produce gasoline or jet fuel.

Globally, about 400,000 bpd of combined diesel, jet fuel and fuel oil capacity has been lost since 2019, according to calculations from EIA data.

Renewable diesel is made from animal fats, food wastes and plant oils but is chemically equivalent to petroleum-based diesel. It can be produced in existing refinery equipment, but the yield are lower than with diesel. Biodiesel, another plant based diesel, must be mixed with petroleum to operate effectively in engines.

Growing demand and refinery losses have pushed diesel prices to record levels. The retail price of U.S. diesel has surged 80 per cent this year to $5.78 a U.S. gallon, and low inventories have raised the potential for shortages. U.S. stocks of distillates, including diesel, are down 19 per cent from a year ago.

About 1 million bpd of new petroleum refining capacity is planned in the next five years in Asia, the Middle East and on the U.S. Gulf Coast. But experts say startups are difficult to predict due to construction delays, changes in market demand and financing.

Biodiesel pivot

U.S. refiners joined the renewable fuels bandwagon two years ago as the pandemic slashed fuel demand and environmental pressures led several to choose de-carbonizing over shuttering facilities.

Marathon Petroleum’s 166,000 bpd Martinez, California refinery and Phillips 66’s 120,200 bpd Rodeo refinery, also in California, converted to renewable diesel facilities. Combined, they will produce 100,000 bpd of renewable diesel by 2023.

HF Sinclair converted a 52,000-bpd Cheyenne, Wyoming, refinery to produce 6,000 bpd of renewable diesel. The former Come-by-Chance refinery in Newfoundland aims to begin producing 18,000 bpd of renewable fuels by 2024.

“These projects should bring incremental barrels in the next few years, but not now when they would be more needed,” said Ravi Ramdas, managing director of energy consultancy Peninsula Energy.

Renewable fuel profits have been bolstered by states, led by California’s Low Carbon Fuel Standard, that reward producers with tradable credits for producing renewable fuels.

However, the credits are now trading at about $80 per ton, down from $200 per ton in 2020, when the majority of these projects were proposed. Still, U.S. refiners say they are not backtracking on renewable diesel projects.

The cost of vegetable oils used to make renewable diesel also has shot up following Russia’s invasion of Ukraine. Soybean oil, a popular refinery feedstock, is up 40 per cent year-over-year, while crude oil is up more than than 60 per cent in that time.

— Laura Sanicola reports on the U.S. energy sector for Reuters from Washington, D.C.

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“I wish I could say there’s a light at the end of the tunnel, but I would say right now, it’s just a flicker,” he said, referring to consumers who are apoplectic about prices as being ‘petro-plectic.’

Kloza pointed a good chunk of the blame for the record-high prices on the exploration companies, the production companies and especially the refiners. He said refiners most often make $5 to $25 per barrel, but are now raking in $50 to $60/barrel (all figures US$).

“If they are running Canadian crude through the Great Lakes…it’s probably closer to $75 to $80/barrel. Those [prices] are not typical, those are epic,” he said.

While crude oil prices are certain to push higher, he doubted if they will top the $150/barrel as some analysts have suggested. Rather he expects them to be in the $120s per barrel, perhaps pushing above the March high of $130.50, but not much more.

Kloza explained there are three key reasons for the price hikes, with one being demand.

“It’s the perceived spike in gasoline demand and the overall increase in diesel demand that’s tied to China coming out of its lockdowns,” he said.

The second reason is the tight supply of diesel, especially in the U.S., and the third being the speculative flaws in the market.

“You’ll find that among the different classes of speculators, a small speculator does not have to report to the Commodities Futures Trading Commission. They can control $30 million worth of fuel. That’s badly in need of an update,” Kloza stressed.

Added to that is the large amount of managed and fund money that’s “very skewed to the long side.”

As for Canadian crude prices, Kloza said the price differential is unusually high at this time.

As of Friday, the difference between the market prices for West Texas Intermediate crude oil was $20.77/barrel higher than Western Canadian Select. Most often the differential is around $13/barrel.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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“After touring multiple farms around the province to hear from farmers and meeting this morning with farmer Tim Marsh at the Nova Scotia Federation of Agriculture, I am acting to help farmers struggling with rising diesel costs,” provincial Agriculture Minister Greg Morrow said in a release May 25.

The government is adding $200,000 to LTAP, bringing its total funding for the program to $550,000. Farmers have to apply to the program online and provide receipts in order to be reimbursed, for up to $32,000 per year per applicant.

Limestone is an essential component for most farmers in the Maritime provinces because the soil’s acidity is naturally higher, so it must be amended to counteract and neutralize that low soil pH.

Also, NSAF president Marsh notes, growers in the region receive more acid rain.

While Marsh is happy more money is being put into LTAP, he’s still concerned with cash flow for farmers.

“My biggest concern is firm cash flow because farmers still have to go and buy the stuff to begin with,” he said. “And I’m hearing stories that guys are cutting back on their inputs because they just don’t have the cash flow to buy everything they should have, and so, that makes me worried.”

In 2021, 143 farmers applied for assistance from LTAP.

— Liam O’Connor reports for Glacier FarmMedia from Saskatoon.

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