Author: Andrew Muhammad

The recent spikes in freight costs are having a significant impact on global trade. The average cost of shipping a standard large container (a 40-foot-equivalent unit) has surpassed $10,000 in recent months, more than four times higher than prices a year ago. Most of this is due to higher freight rates for routes out of China. For instance, container rates for shipments from Shanghai to New York increased from $2,500 to more than $20,000 in September 2021 (Freightos Data, 2021). To put this in context, an east coast buyer that spent $100,000 last year in freight costs when importing goods from China is now paying almost $1,000,000 in freight costs to import the same items. Given the high demand for containers out of China, there has been a shortage of containers at U.S. ports affecting exports. What does all of this mean for U.S. agricultural exports? Once consequence is that the bulk shipping rates have also increased from $1,000 to over $5,000 in October (now around $3,400) (Trading Economics, 2021), which affects commodities like soybeans and corn. 

As we begin our research on the effects of shipping rates on U.S. agricultural exports, it is important to first understand the importance of different modes of shipping for U.S. agriculture. The figure shows the share (volume) of U.S. exports across product categories by different shipping modes (bulk, container, and air). To be expected, bulk commodities like wheat, corn, sorghum, and soybeans are most reliant on bulk carriers (more than 90% of all shipments by volume), whereas many products rely on both container and bulk shipping (e.g., poultry). U.S. exports of livestock products like beef, pork, and cheese are heavily reliant on container shipping (90% of all shipments). These products are likely to be the most affected by the recent spike in container rates and shipping costs.

Share of Commodity Export Volume by Shipping Mode: 2003-2021

Sources: 

Freightos Data (2021) FBX Routes. https://fbx.freightos.com/freight-index/FBX03

Trading Economics (2021) Baltic Exchange Dry Index. https://tradingeconomics.com/commodity/baltic

U.S. Department of Commerce (2021). USA Trade® Online. U.S. Census Bureau. https://usatrade.census.gov/

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Muhammad, Andrew, and Michael Adjemian. “The Rise in Shipping Costs and U.S. Agricultural Exports.” Southern Ag Today 1(51.4). December 16, 2021. Permalink

The recent spike in fertilizer prices will have a significant impact on U.S. crop production moving forward. The global fertilizer market had already been tightening before plants were forced to cut production given the rise in the cost of gas, a key feedstock (Larkin, 2021). In the U.S., this has resulted in a significant increase in fertilizer import prices. Over the last 5 years (2016-2020), U.S. fertilizer imports have averaged nearly $6 billion (around 25 million metric tons), accounting for a significant share of total fertilizer use in the U.S. (USDA-ERS, 2019).

Most U.S. imports are either potassic fertilizer (potash) and nitrogenous fertilizer, as well as mixed fertilizers. Since 2017, potassic import prices have averaged less than $220 per metric ton (MT) but has increased to nearly $300/MT in recent months (August 2021), which is an increase of about 40% when compared to the average from 2017-2020. Nitrogenous fertilizer, which also averaged less than $220/MT over the last four to five years, is now more than $350/MT, an increase of about 71% when compared to 2017-2020. The price of imported mixed fertilizer has increased to nearly $700/MT, up 58% when compared to 2017-2020. Trends suggest that fertilizer import prices will continue to increase, resulting in significant economic strain for U.S. producers.

U.S. fertilizer import prices significantly higher in 2021 due to global supply and demand issues

References

Larkin, N. (October 15, 2021) Supply Lines Fertilizer Crisis Piles More Pressure on World’s Future Food Supply. Bloomberg. https://www.bloomberg.com/news/newsletters/2021-10-15/supply-chain-latest-warnings-mount-over-fertilizer-crisis

U.S. Department of Agriculture, Economic Research Service (USDA-ERS) (2019). Fertilizer Use and Price. https://www.ers.usda.gov/data-products/fertilizer-use-and-price.aspx  

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Muhammad, Andrew. “Global Fertilizer Market Affects U.S. Import Prices.” Southern Ag Today 1(46.4). November 11, 2021. Permalink