uncertain, US and global producers should brace for higher fertilizer costs in 2022. Shifting to general economic conditions, the US economy ended 2021 on a strong note with gross domestic product (GDP) growing at an impressive 7.0% annualized rate in the fourth quarter, according to the US Bureau of Economic Analysis. The rise in GDP was due to increases in private inventory investment, exports, personal consumption expenditures, and nonresidential fixed investment. GDP growth accelerated in the fourth quarter as the data came in well ahead of the 2.3% annualized growth achieved in the third quarter. In total, for the full calendar year of 2021, the US economy realized a 5.7% increase in annualized GDP, representing the highest annual growth rate since 1984.
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Russia is the second largest potash producer, top exporter of nitrogen, and third-largest phosphate exporter, therefore any disruption to its ability to produce and ship these products results in higher fertilizer prices for agricultural producers around the globe.
largest potash producer, top exporter of nitrogen, and third-largest phosphate exporter, therefore any disruption to its ability to produce and ship these products results in higher fertilizer prices for agricultural producers around the globe. In early March, Russia’s Ministry of Industry and Trade recommended suspending the export of fertilizers until normal transportation services in and out of Russia are resumed. Subsequently, the Bloomberg Green Markets North American Fertilizer Price index rose 10% on March 4th, the day of the Russian Ministry’s statement. While a firm ban on exports is not currently in place and the final impact to fertilizer markets is still 13
Spring 2022 — Partners
Despite the strong finish to 2021, the US economy entered 2022 with a notable level of uncertainty due to a variety of factors including the impact of the Omicron COVID-19 variant, less fiscal support provided by the Federal Government as COVID-era programs fade away, and the expectation of a less accommodative monetary policy by the Federal Reserve. Additionally, the recent geopolitical crisis stemming from Russia’s invasion of Ukraine has provided yet another headwind to global economic growth. Due to the significant level of uncertainty provided by all of these factors, forecasting the path of the US economy is incredibly difficulty; however, the one consensus view from economists across the country is that 2022 GDP growth will lag that which was achieved in 2021. Inflation continues to be a hot topic in the US economy as the US Bureau of Labor Statistics (BLS) reported the Consumer Price Index (CPI) increased in February by 0.8% for the month and over the last 12 months, the index had increased by a total of 7.9%. Rises in the prices for gasoline, shelter, and food were the largest contributors to the CPI increase in the February report. The CPI’s 12-month increase has been steadily rising and is now at the largest level since January 1982, when the US was in a recession and trying to control doubledigit inflation. The Federal Reserve has signaled it will attempt to tackle the soaring level of inflation, beginning at its March 2022 meeting. The Fed will open its playbook with an interest rate hike of 0.25% and is anticipated to continue with rate increases at future meetings in the coming year. The bond market currently has priced-in the equivalent of seven 0.25% rate increase for 2022, but the Fed has stated it will proceed cautiously with future hikes as it closely monitors inflation, strong demand, a tight labor market, and geopolitical risks from the Russia-Ukraine conflict. In addition to interest rate increases, the Fed will conclude its bond buying program with a final round of $16.5 billion in mortgage-backed securities purchases in March. Beyond the conclusion of purchases, it is expected to Fed will finalize a plan to begin reducing the size of its $9 trillion asset portfolio, which consists of Treasury bills and mortgaged-back-securities. The combination of higher interest rates and the reduction of the Fed’s balance sheet will result in a significantly less accommodative monetary policy for the US economy in 2022. In the end, the Federal Reserve will be attempting the incredibly difficult task of slowing the pace of inflation without tipping the US economy into a recession. ■
