KANSAS CITY, MO. — Supply-side constraints and shortages of labor and natural gas that continue to slow economic activity and elevate prices are expected to negatively impact consumption and investment, leading to higher inflation and a lower gross domestic product, Rabobank indicated in its latest North American Agribusiness Review.
Domestic corn yields continue to improve as harvest proceeds. That’s despite crop condition ratings from the US Department of Agriculture at the lowest levels since 2012, excepting the extremely wet 2019 crop. And reports from growers are of a better-than-expected crop. That has borne out in data showing the current crop yielding close to 29,000 ears per acre, the second highest since 2018.
Globally, corn markets will factor in Brazilian acreage pulled higher by tight supplies, strong prices and the rapid pace of soybean planting. But the increase in corn acreage could be limited by the cost and supply of fertilizer and the fact that domestic cotton acres could increase after losing out to corn acres in 2020.
Corn markets are expected to begin pricing in decreased ethanol demand. Grind for ethanol in the 2021-22 crop year remains 4.5% behind the five-year average compared with gasoline up 0.5% from the five-year average. The average ethanol blend rate this crop year sits at 10%, down from 11% as the average for the entire previous crop year. Corn futures’ direction is limited to the upside by a large carryout and to the downside by supply concerns unless the US crop grows significantly larger or demand plummets, Rabobank said.
The USDA in its October crop production, World Agricultural Supply and Demand Estimates report and Sept. 1 Grain Stocks report increased its projections for soybean production, yield and stocks. Soybean markets continue to see strong demand, both globally and in the United States, despite the USDA’s projections for a reduction in overall demand from 2020-21 to 2021-22. New-crop demand, if realized, would be the second highest on record. Soybean crush reached record levels last year and is expected to reach the second-highest level in 2021-22. Soybean export sales for 2021-22 were tracking closely with 2016-17, the highest on record until last year, Rabobank said, and that market has some upside potential. Possibly limiting that potential was Brazil’s spring toward another record soybean crop in 2021-22. Planted-area estimates were for a 2.5% to 5% increase, and projected production was 141 million to 144 million tonnes compared with last year’s 137-million-tonne crop. However, high costs and availability of fertilizer and other inputs were a concern to Brazilian growers, especially Roundup, considering 90% of Brazil’s soybean crop are Roundup-Ready varieties.
“USDA’s production projections added to the bearish mood,” Rabobank said. “The better-than-expected yields and the opportunity to still lock in profitable margins for this year and potentially next year are what’s important. Market participants remain in a selling mode, but there is an opportunity to lock in profitable margins and take some risk off the table.”
Supply-side constraints continue to challenge the economic recovery, especially supply chain disruptions and a widespread labor shortage. An emerging natural gas shortage amid expectations US production will remain below pre-COVID levels could have a broad impact on the economy, the report said, affecting the production of ethanol, aluminum, fertilizer, plastics and food packaging. Higher inflation and a lower GDP are expected to follow the decline in consumption and investment as supply chain limitations slow economic activity and send prices higher.
Logistics have begun to normalize, but have plenty of ground left to cover, Rabobank said. The container freight market saw a pullback in September, as carriers offered sizable discounts to fill China-to-North-American outbound container ships at the last minute. Carriers responded to the decline with various surcharges as high as $8,500 per 40-foot container. Those prices were expected to stabilize “at a higher equilibrium in mid- to late-2022.”
Extended port hours were instituted in Southern California in an effort to alleviate congestion facing West Coast ports. In the first month afterward, few trucks picked up containers during the extended hours. The plan could work if truckers and warehouses began operating on the same extended hours, Rabobank said.
Despite the congestion, shippers and operators are moving goods at record rates amid challenges. The United States has hit record-high imports and exports. Imports were up 10% in the first eight months of 2021 compared with the like period in 2019, and up 23% compared with 2020. Exports in that time were up 3% from 2019 and up 24% against 2020 in US dollar values, Rabobank said.