Rabobank highlights supply and demand pressures for North American agribusiness
Shipping and labor challenges continue to plague the supply chain but, according to a new Rabobank report, some normalization is happening while the U.S. sees new highs in imports and exports.
“It is hard to rationalize this, but this shows the resilience of our supply chains and strong consumer demand,” Rabobank said in its North America Agribusiness Review for October. “Products are getting across the ocean despite the challenges.”
It said total U.S. imports grew by 9.6% in the first eight months of 2021 compared with the same period in 2019 and up by 23.1% from 2020. Exports grew 3.3% for the same period in 2021 vs. 2019, and by 23.9% vs. 2020.
Rabobank said it is seeing the first major pullback in container rates since the start of the COVID-19 pandemic, but that carriers are adding various surcharges in an effort to resist the rate declines.
“As significant as the decline was, it will likely take months before we are anywhere near pre-pandemic levels,” the report said. “Pricing is likely to be stabilized at a higher equilibrium toward mid- to late next year.”
The report also noted that labor shortages in the trucking and warehousing industries are expected to continue into 2022 while, leading into the holiday season, agricultural commodities will compete against consumer goods for container space.
Corn
While U.S. corn crop condition ratings are low, the yield projection, if realized, would be the second highest on record. Producers report their crop is better than expected, Rabobank said.
“As a result, the corn market remains in a bit of a funk, as production and stocks continue to increase. However, it is important to keep prices in perspective; corn futures still have a US$5 in front of them,” the report said.
Soybeans
The U.S. Department of Agriculture (USDA) has increased soybean production, yield and stocks, while strong demand continues.
“Despite the USDA showing a reduction in overall demand in 2021-22 from 2020-21, new crop demand, if realized, would be the second highest on record,” the report said.
Soybean crush projections for 2021-22 show the second highest level on record, as capacity continues to grow.
Wheat
The U.S. and global wheat markets are similarly seeing reduced supplies, lower domestic use, unchanged exports and decreased ending stocks.
“Accordingly, prices have responded to the upside, but the bearish mood of the corn and soybean markets may weigh on wheat futures,” Rabobank said.
Feed costs
Animal feed costs are expected to remain high for the rest of 2021, Rabobank said. The USDA said it will offer some relief by covering some of the cost of feed transportation for grazing animals, while governors in several Western states have extended drive time for truckers to deliver hay during the drought.
Hay stocks have declined, and total hay production is expected to fall approximately 2% from last year. Meanwhile, hay prices continue to increase.
Poultry
Strong retail and foodservice demand for chicken is bolstering the market, Rabobank said.
“Chicken markets are strong, as demand continues to outpace supply – an outlook that should continue through year-end,” the report said.
Chicken slaughter remains lower than year-ago levels but is expected to stabilize this year. Rabobank is forecasting modest growth in ready-to-cook chicken production in 2021, with slightly higher bird weights offsetting the lower slaughter numbers.
Chicken exports were up 5.5% year over year in August, due in part to shipments to Mexico, Cuba and the Philippines; meanwhile exports to China, Canada and Vietnam are down.
As several factors have worked against Russia as the “top low-cost wheat exporter in the world,” other exporters, including the U.S. may be able to increase their wheat exports.
Pork
Labor shortages are affecting pork production, which is expected to fall 2% in 2021. Supplies are likely to remain constrained into the first quarter of 2022, the report said.
Pork carcass values have declined from the previous season, but are 17% higher than a year ago. Pork prices are also up 17% year over year, but are well below peak summer levels, the report said.
“Overall demand remains disappointing due to weaker economic conditions, but it is beginning to stabilize,” Rabobank said. “We expect further improvement in pork demand as prices normalize, thanks to a better balance between supply and demand.”
Hog prices, which are up 38% year over year, are also expected to continue to normalize through the rest of this year.
Dairy
The U.S. dairy herd continues to shrink as nearly all farm costs rise. This is causing producers to look to cull, but slaughter capacity is limited.
“The impact of declining cow numbers on milk production will be offset by efficiency gains in milk yield per cow, but even these will be tempered by rising feed costs,” the report said.
Milk production in August was up only 1.1% from the previous year and, while production is expected to continue to remain positive for the remainder of 2021, it will stay muted.
