Supply chain impacts have been felt by every segment of the chain, largely a result of the latest COVID-19 variant, but they are expected to be short-lived compared to the previous variant’s impacts, according to CoBank’s latest Quarterly report.
“Economic risks from new, high-impact coronavirus variants will remain throughout 2022,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division. “But Americans are increasingly making peace with the notion that the virus, in some form, will be with us for months if not years, and we must find a way to live more normally with it. This shifting mindset will de-risk the economy to some degree.”
Setbacks are largely a result of worker shortages, but the economic backdrop is bright, according to the report. Consumers continue to spend money, and workers are reentering the labor pool. However, higher inflation is expected, with the first interest rate increases likely to come in March.
Agri-food supply chain
“Omicron is everywhere, and the impacts are being felt along much of the agri-food supply chain. Farm inputs are still difficult to source, transportation rates remain sky high and empty shelves are reemerging at grocery stores,” Kowalski said.
He wrote that the near-term effects of the COVID-19 omicron variant on the agribusiness and food supply chains are challenging, but if the variant follows the same trajectory in the U.S. as it did in South Africa, the wave should be much shorter. Until then, sick workers will be the biggest economic risk, and processors, grocers and restaurants will struggle to operate as normal, according to the report.
However, Kowalski said reductions in protein production have been relatively modest so far, although ripple effects from drop-offs in 2020 slaughter are still being felt today. In addition, he said port issues in California are starting to clear up.
Toward the end of 2021, 80 percent of inbound containers from Asia to the U.S. were sent back empty, leaving billions of dollars of ag exports stranded at the three most important ports in California. The Oakland terminal announced it would open a new container yard dedicated to ag goods, which Kowalski said should reduce some of the port congestion for exporters.
“Finally, the supply chain picture looks a bit rosier due to more workers in warehousing and transportation,” he said. The U.S. added 800,000 jobs since May 2020, and although sick workers will slow the transport of food goods for a few weeks, the workforce will make steady improvements, he added.
“As of late December, we have now regained 84 percent of the jobs lost since the pandemic began, equating to 3.6 million fewer workers than early 2020. But it’s estimated that more than 2 million people took early retirement and will not return,” Kowalski said.
Omicron will make a dent in first quarter gross domestic product, but it should bounce back in the second quarter and remain on track for 4 percent growth in 2022, according to the report. However, if the Fed tightens financial conditions too quickly in the second and third quarter, it poses a risk in loss of economic momentum and possibly a recession in 2023, he warned.
“As the labor market inches closer to full employment, any last arguments for the Federal Reserve to maintain its highly accommodative monetary policy are losing their merit,” the report read. “With the market now anticipating a sea change in monetary policy, the tightening of financial conditions has begun.”
Beef market
Protein disappearance remains historically large, limited only by animal numbers and processing capacity, according to Brian Earnest, lead economist for animal protein in CoBank’s Knowledge Exchange division.
Red meat and poultry production set a November record of 8.9 billion pounds, 3.5 percent larger than a year earlier, while fourth quarter wholesale meat indexes were 25 percent higher, reflecting robust consumer demand for meat and poultry.
China’s animal protein imports have slowed significantly from the summer, but there is optimism for U.S. beef producers, especially since Brazil’s beef exports were suspended due to atypical bovine spongiform encephalopathy cases.
Cutout values peaked 40 percent about 2020 levels in 2021. “After staying above prior-year levels and reaching more than $1,300/cwt, the market for bone-in Choice ribeyes fell below $800 to end December—a sign that the market succumbed to the old adage that the solution to high prices is high prices,” Earnest said.
Fed cattle prices have increased roughly 12 percent since late October and are up about 30 percent year over year, due to dwindling supplies, Earnest said.
Weather remains a big factor, with more than 70 percent of the U.S. in some stage of drought. La Niсa will bring drier and warmer conditions to the Southwest and Southern Plains, which will likely influence hay prices. — Anna Miller, WLJ managing editor
