A few months ago, it seemed possible to suggest that COVID-19 could be on the decline and that some sense of normalcy would return to our lives – at least for those of us who are vaccinated and have received boosters. But as we look to 2022 and the latest variant sweeping the world, it’s clear that the virus and the ensuing labor and supply disruptions will still have a major impact on the economy at least for the foreseeable future.

But that’s certainly not the only factor to watch out for as we gaze into our crystal balls for the New Year in farm countries. Demand is high for most agricultural products and proteins, which boosts income projections, but also leads some to worry about adequate supplies and the potential impact of even higher food prices.

“Since the pandemic hit, demand has been incredibly strong,” said Dan Basse, president of AgResource Company. “Retail beef prices were $ 8 / lb. Last week. We have never seen this before and it all has to do with increasing levels of disposable income. ”

He believes global demand for grains and meat will remain relatively strong until 2022.

“This is the first time the world has produced a record grain harvest and we have used more than what we produced. This gives us a very clear signal that agricultural production needs to expand, ”Bass noted on Agri-Pulse Open Mic.

But there are also headwinds ahead that can reduce the potential benefits.

Inflation is having a major impact, the supply chain is still not functioning efficiently, input prices are skyrocketing and there is a lot of uncertainty in agricultural trade. And let’s not forget the weather.

“The prices of agricultural commodities have increased by about 28% over the past year and 40% above pre-pandemic levels,” noted Berry Marttin, member of Rabobank’s Management Board, in its annual forward-looking report. “The rise in the prices of agricultural commodities is also exacerbated by other inflationary pressures in the economy, such as the astronomical rise in gas prices before the northern hemisphere winter, the shortage of labor. work, rising rents and rapidly rising prices of inputs such as fertilizers, crop protection products and machinery, among others. Yet inflationary pressures are not the only challenge.

We’ll likely see less Covid-related disruption, the Rabobank economist noted, but when it comes to commodity prices, “any sense of normalcy seems unlikely, and inflation in this space is almost certainly not. not just “temporary.” Any significant decline in agricultural futures prices will likely be offset by significant pent-up consumer coverage, which has been limited in this period of high prices. 2022 will start from a low inventory position in many agricultural commodities , which should lead to increased volatility. ”

Unsurprisingly, Rabobank analysts titled their annual outlook report for 2022: “Hell in the Handbasket.”

In a similar outlook report for the coming year, CoBank’s team of knowledge exchange economists predicts the U.S. farm economy will continue to struggle. with supply chain dysfunction and cost inflation. And they don’t foresee a significant drop in farm-level costs until at least the third quarter of 2022.

Rob Fox of CoBank explained that, for crop producers, fertilizer prices are currently double the 10-year average and some crop protection chemicals, which are often imported, “have become almost impossible to find in Canada. any price due to shipping congestion.

“The recent increase in costs alone for these two inputs equates to about $ 0.70 / bushel for a corn farmer, or about a 15% increase in the total cost of production. Additional cost increases for labor, machinery, fuel and seeds must also be taken into account, ”Fox wrote.

“So while corn futures prices of around $ 5.50 / bushel for delivery in late 2022 appear to be attractive at first glance, further analysis predicts modest profit margins for next year. The same general story of historically strong prices being more than offset by increases in the cost structure holds true for almost all crop production, including row crops, fruits and vegetables, and hay. “

The outlook is more positive for breeders. CoBank’s Fox wrote that livestock producer margins are expected to continue to be generally favorable, with the effect of lower beef supply ultimately translating into higher producer prices.

“Pork and poultry producers should both enjoy another good year, but perhaps not like the exceptional 2021. After a very difficult year, dairy farmers will benefit from a tighter global milk supply and lower costs for protein foods, ”he added.

The Rabobank report also noted that food inflation is expected to remain high, “with uncertain social consequences”.

“Like a spiral, the more commodity prices rise, the more buyers want to source, to avoid future shortages and disruptions and ensure normal operations,
said the report.

“For staple foods like wheat, exporting countries have increased export taxes to cool domestic prices, while importers have tried to speed up their import programs to control food inflation,” Rabobank economists explained. “In the midst of the pandemic – which is still peaking in some parts of the world – maintaining a good supply of agricultural products, and staples like wheat in particular, is a key government objective to avoid further discontent.

Keep in mind that the ‘firm’ part of food prices is usually a small percentage, but that doesn’t mean producers are unlikely to be singled out – especially by those who are least able to afford it. higher food prices or government officials seek to blame.

Rabobank predicted that it is “very unlikely that food prices will return to the five or ten year average in 2022, as commodity prices are now supported by inflation in the general economy”, including including high shipping costs, energy and fertilizer prices, as well as a labor shortage in many countries.

“Urea prices in the Gulf of the United States, for example, have increased 272% year-over-year, raising questions about how much fertilizer will be used in places where farmers do not have access to finance and / or have financial difficulties. ”

Rabobank’s inflation outlook runs counter to views expressed by the Biden administration and some other economists who insist that inflation is transient and will begin to subside next year, once the unrest. the supply chain can be resolved. Earlier in December, President Biden told reporters that the reason for the inflation is that “we have a supply chain problem which is really serious.”

“I think you’ll see it change sooner, faster, faster than people think,” Biden told reporters in early December. “All other aspects of the economy are moving forward.”

For more news, visit www.Agri-Pulse.com


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