Labor force and natural gas shortages slowing economic activity | 2021-10-26


KANSAS CITY – Supply side constraints and labor and natural gas shortages that continue to slow economic activity and raise prices are expected to negatively impact consumption and investment , resulting in higher inflation and lower gross domestic product, Rabobank said in his latest North American report. Agro-industry review.

Domestic and global wheat markets characterized by lower supplies, reduced domestic use, stable exports and lower carry-in stocks pushed prices higher. But wheat could come under downward pressure due to a bearish mood in the corn and soybean markets, Rabobank said. As all wheat classes are reaching multi-year highs, fundamental indications are for another year of strong prices. For example, durum wheat production at 37 million buses, the lowest since 1961-62, and white wheat production at 201 million buses, the lowest on record.

Meanwhile, the global wheat supply picture continues to tighten. Although overall production is up slightly from 2020, several major wheat-exporting countries experienced marked declines in production for 2021-2022, including Argentina, Canada, Kazakhstan, Russia and the United States. United. Australian and Ukrainian exports are expected to make up some of this difference. Rabobank predicts an increase in pet food and total domestic disappearance in 2021-2022 despite the price hike. With exports only down 920,000 tonnes from 2020-21, export prices are on the rise in major exporting countries.

Changing fundamentals threatened Russia’s place as the world’s leading exporter of low-priced wheat. Drought, high domestic prices and a strong Russian ruble limited the supply of wheat. Temporary export restrictions gave way to permanent export tariffs in an attempt to slow the rise in grain prices in the domestic market. This has eliminated most of the upside potential for exporters and is expected to cost Russian farmers 15-20% of their income.

“As a result, farmers will lose the incentive to plant due to the loss of income, in addition to higher production costs and potentially lower yields,” Rabobank said. “Private companies that follow Russia are already seeing a reduction of up to 5% in winter wheat plantings this year due to adverse weather conditions and declining profitability. This would be the first decrease in planted area in four years. In the future, other exporters, including the United States, may have more opportunity to increase their wheat exports. “

The report contained positive news for the corn market. Domestic yields continue to improve as the harvest progresses. This is despite the U.S. Department of Agriculture‘s crop condition assessments at the lowest levels since 2012, with the exception of the extremely wet 2019 crop. And producer reports point to a better than expected harvest. This was confirmed in data showing that the current crop is yielding almost 29,000 ears per acre, the second highest since 2018.

Globally, corn markets will reflect Brazilian acreage driven up by tight supplies, high prices and the rapid pace of soybean planting. But the increase in maize area could be limited by the cost and supply of fertilizer and the fact that national cotton areas could increase after losing maize area in 2020.

Corn markets should begin to assess declining demand for ethanol. Grinding for ethanol in crop year 2021-22 remains 4.5% below the five-year average compared to gasoline up 0.5% from the five-year average. The average ethanol blending rate this crop year is 10%, down from the 11% average for the entire previous crop year. Corn futures’ direction is limited to the upside by a large carryover and downward by supply issues, unless the U.S. harvest is significantly larger or demand slumps, said Rabobank.

The USDA, in its October Agricultural Production Report, Estimates of Global Agricultural Supply and Demand, and the September 1 Grain Stocks Report, increased its projections for production, the soybean yield and stocks. Soybean markets continue to experience strong demand, both globally and in the United States, despite USDA projections for a reduction in aggregate demand from 2020-2021 to 2021-2022. Demand for a new crop, if it were to materialize, would be the second highest on record. Soybean crushing reached record levels last year and is expected to reach the second highest level in 2021-2022. Soybean export sales for 2021-2022 closely followed those of 2016-17, the highest on record until last year, Rabobank said, and this market has some upside potential. Brazil’s spring towards another record soybean crop in 2021-2022 may have limited that potential. Estimates of the area planted were for an increase of 2.5% to 5%, and the forecast production was 141 million to 144 million tonnes compared to last year’s harvest of 137 million tonnes. However, the high costs and availability of fertilizers and other inputs were a concern for Brazilian growers, especially Roundup, given that 90% of Brazil’s soybean crop is Roundup-Ready varieties.

“USDA production projections have added to the bearish mood,” Rabobank said. “Better than expected returns and the ability to maintain profitable margins for this year and potentially next year are what is important. Market players remain in a sell mode, but there is an opportunity to lock in profitable margins and take some risk on the table. “

Supply side constraints continue to challenge the economic recovery, in particular supply chain disruptions and a widespread labor shortage. An emerging shortage of natural gas amid expectations that U.S. production will remain below pre-COVID levels could have a significant impact on the economy, according to the report, affecting the production of ethanol, aluminum, gasoline, etc. fertilizers, plastics and food packaging. Higher inflation and lower GDP are expected to follow the decline in consumption and investment, as supply chain limitations slow economic activity and push up prices.

Logistics have started to normalize, but there is still a long way to go, Rabobank said. The containerized freight market fell in September, with carriers offering deep discounts to fill container ships outbound from China to North America at the last minute. Carriers have responded to the decline by imposing various surcharges of up to $ 8,500 per 40-foot container. These prices were to stabilize “at a higher equilibrium between the middle and the end of 2022”.

Extended port hours have been instituted in Southern California in an effort to reduce congestion at West Coast ports. In the first month that followed, few trucks picked up containers during the extended hours. The plan could work if truckers and the warehouse started operating at the same extended hours, Rabobank said.

Despite the congestion, shippers and operators are moving goods at record rates despite the challenges. The United States has reached record levels of imports and exports. Imports increased by 10% in the first eight months of 2021 compared to the same period in 2019 and by 23% compared to 2020. Exports during this period increased by 3% compared to 2019 and by 24% over 2020 in US dollars, Rabobank mentioned.


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