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Farmers can help world weather Russian war in Ukraine

Vitalii Petrushenko/Getty Images Close-up shot of flag of USA on wheat
STEPPING UP: The Russian invasion of Ukraine is already setting off chain reactions in global food and energy sectors. And U.S. farmers and consumers are feeling the pinch at the fuel pump. But American farmers have always stepped up to feed hungry people in times of crisis, and they can meet the challenge again — if they get their financial fundamentals in order first.
U.S. farmers have a history of stepping up when the world needs them. They can do it again.

The past month, my gut has been tied in knots.

Like many of you, I’ve sat in on several calls with commodity and economics experts. I’ve even sat in on our own FarmProgress365 sessions. We knew we would be seeing a period of inflation this year coming out of the pandemic. And we were warned months ago that a potential Russian invasion of Ukraine could set off chain reactions in the food and energy sectors.

If history teaches us anything, it’s that when the world is in crisis, American farmers will step up to the challenge. The question is, though, are they in a financial position to do that again?

Balance sheets

According to Kansas State University economists, this conflict has the potential to disrupt the energy, fertilizer and durable goods supply chain even more, which could cause inflation to rise even more. With wheat at $12 a bushel, farmers could see profits. But with uncertainty on the costs of fertilizer, fuel and other crop inputs, now is a time for farmers to get their financial fundamentals in order.

Brian Briggeman, director of the Arthur Capper Cooperative Center at K-State, advises farmers to focus on what they can control on their operations. They need to build their balance sheets, liquidity and solvency. They’ve got to get even more efficient and cut operations costs where they can. Now would be a good time to contact lenders and see about fixed-rate financing, too. And especially get these things in order before hitting the field to plant this spring.

“2022 could be a profitable year for you, but you have to focus on that balance sheet to get it as strong as you can,” Briggeman says. “Build liquidity and working capital so you can weather any downside risks. You want to have that cash liquidity to fall back on, or to be able to seize any opportunity in the future.”

Opportunity

On March 8, President Joe Biden announced a halt on all Russian oil and gas imports. The news, coupled with the conflict, had prices at the fuel pump soaring.

Now, you and I know that the business of agriculture uses fuel. We need fuel to get the crop planted, harvested and transported. We need fuel for pumping irrigation. We need natural gas and petroleum for fertilizer and plastics. We need fuel to commute to the day jobs that pay for the farm and family expenses.

We don’t have an electrical vehicle infrastructure out here in rural communities, and public transportation just won’t cut it in the immediate term, Hoss.

But, what we do have is a renewable fuels industry that has already allowed us to diversify our homegrown energy production.

And until the oil companies that are sitting on 9,000 leases and not pumping a gallon decide that our national security is worth more than their shareholders’ profits, the renewable fuel sector is our ticket to getting through this crisis.

The Renewable Fuels Association, Advanced Biofuels Business Council, American Farm Bureau Federation, Clean Fuels Alliance America, Growth Energy and National Farmers Union have all called on the Biden administration to put the RFS back on track and to expand clean energy production as a way to not just reduce emissions, but to protect the economy from volatile oil prices.

“American-made biofuels are the only abundant, affordable, homegrown alternative to oil that can immediately extend the domestic supply of liquid fuels,” the organizations said in a release. “It was the right solution when experts warned time and again that the Organization of the Petroleum Exporting Countries (OPEC) and Russia would not protect American drivers from inflated fuel costs. Today, the economic case for biofuel blends is as clear as the signposts outside every fueling station. Ethanol is trading at a steep discount compared to unblended gasoline, often 50 to 60 cents per gallon, and consumers are driving out of their way every day to capture the extra 15 cents or more per gallon savings on higher blends like E15.”

With fuel prices spiking at well over $4 a gallon, a nationwide push to use E15 alone could save drivers $12 billion or more, according to RFA.

If our urban consumers can save money at the pump, in this time of rising inflation, that helps protect the consumer demand for beef at the grocery store that we saw emerge from the pandemic. If farmers can use more biodiesel or ethanol in their equipment or personal vehicles, they can reduce their costs.

And the best part is, the infrastructure is already here on the ground for biofuel and ethanol.

The time for pitting renewable energy against petroleum must be over. We need all options on the table.

In it together

We are not at war, yet. But I see this situation getting much worse before it gets better, I’m afraid. Russia and Ukraine hold little carryover stocks and export much of their production every year. So, if our Ukrainian farmer friends can’t get into their fields to plant this spring, how will they feed their livestock and their people? Let alone how will they feed nations that rely on them for a large part of their food supplies, like Egypt, Indonesia, Bangladesh, Pakistan, Turkey, Yemen and Lebanon?

The longer the conflict drags on, the worse of a humanitarian crisis we will see in that part of the world. To paraphrase our favorite son, the late Sen. Bob Dole, hungry people lead to social unrest and more violence.

American farmers have always stepped up to feed hungry people in need. American farmers can raise the crops to ease our nation’s energy supply shortage.

And if farmers heed the experts’ advice, they can do that and still come out of this crisis in the black.

TAGS: Energy Finance
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