DENVER – The widely anticipated summer economic boom is well under way, and U.S. consumers are spending on services again. Jobs are abundantly available, but workers are scarce as the labor market is healing more slowly than most economists expected.
According to a new quarterly report from CoBank’s Knowledge Exchange, labor challenges felt during the pandemic and continuing today will incentivize businesses throughout the food supply chain to rapidly increase automation within their operations.
The most significant and lasting impact from COVID-19 will be an acceleration in automation, said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division. This won’t be an overnight transformation, but larger investments in technology to lead to a much more automated supply chain.
Commodity price inflation has been a boon to many ag producers over the past year. But increases in raw material and transportation costs, combined with higher wages, are causing retailers to push those higher costs on to consumers. U.S. consumers have benefited from very low food inflation for much of the past decade, but higher prices are a near certainty for the next year.
Grocers and restaurants are anxious to learn what and how consumers will want to eat in the new equilibrium. The coming adjustments will look quite different for each segment of the food supply chain. But the acceleration in change will be meaningful, and strategic steps to build more resilient businesses are coming sooner than previously believed.
Some highlights from the report:
Grain prices entered a new phase of extreme price volatility in the second quarter of 2021. Corn, soybean and wheat prices climbed to a nine-year peak before shifts in non-commercial, speculative buying activity pulled prices down as fears of runaway inflation subsided. Elevated price volatility will continue in the months ahead as mixed weather forecasts and moisture deficits threaten yields during critical stages of the current growing season. Export demand for U.S. grains remains strong.
Farm supply cooperatives enjoyed a strong spring agronomy season, as rising grain prices gave U.S. crop farmers confidence to increase input spending. Fertilizer supplies remain plentiful in North America and retailers that bought extra inventory early in 2020 should be able to re-sell at attractive margins. Fertilizer prices were up 17% in Q2 and are within 10% of 2012 peak prices. Retail inventories of crop protection products are currently full, although sourcing agrochemicals from Asia could become a near-term challenge that would impact the entire U.S. grain complex.
The U.S. fuel ethanol sector outperformed expectations during the past quarter and appears well positioned for the second half of 2021. Overall economic growth and seasonal driving demand pushed up fuel ethanol production and operating margins in Q2. The regulatory and policy environment remains dynamic, however, and it’s unclear where biofuels, fossil fuels and electric-powered vehicles will fit in under a final infrastructure package.
Meat and poultry prices hit record highs in mid-May as food service and retail grocery pipelines were primed for post-COVID consumer activity and summer celebrations. Food service sales reached pre-COVID levels in April, hitting an all-time monthly high of $75.3 billion. More illuminating, however, is that overall retail grocery sales growth is up 7.3% from a year ago and 15.3% from 2019, providing evidence of longer-term changes in consumer behavior.
Despite beef prices being at or near record highs, cattle ranchers and feeders are currently facing limited national slaughter capacity, high feed costs and the liquidation pressures of exceptional drought hitting the western U.S. With packer margins reportedly hitting $1,000/head earlier in the year, it is not surprising that producer organizations have pressured Congress to intervene. The national beef herd is already in contraction due to weak cow-calf profitability going back as far as 2015.
The U.S. sugar beet crop is expected to deliver strong yields this fall following nearly ideal planting conditions that allowed for strong crop establishment. Domestic sugar deliveries are improving, but sugar demand for use in food and beverages remains uncertain as the economy recovers in the months ahead.
The historic drought conditions in the Western U.S. intensified last quarter with water allocations to some agricultural irrigators cut to zero in California. Growers are adjusting by fallowing crop acreage and allocating scarce water to permanent plantings rather than field crops. Prices for fruits and vegetables are rising for consumers, but not necessarily for growers. Rising transportation and warehousing costs have been noted as the key drivers for rising produce prices.
Read CoBank’s Quarterly in full at https://tinyurl.com/89tfdn3y.