Supply Disruptions Add Costs

Bottlenecks Loom for Critical Ag Supplies


By Victoria G Myers, Progressive/DTN



BIRMINGHAM, Ala. (DTN) -- Ag businesses are dealing daily with an inability to get necessary supplies for customers and for their own operations. A new report from CoBank, "Adapting to Persistent Supply Disruptions," indicates the U.S. economy is transitioning to a new phase, which will affect ag supplies for the rest of the year and into 2022.


Supply disruptions, along with labor shortages, are adding significant costs to businesses, writes CoBank Analyst and Vice President Dan Kowalski. He reports the U.S. economy is still in the grips of the pandemic, but that today, the influence is more on the supply side than on the demand side. He explained that "most people feel safe enough to engage in most public activities. And consumers are still flush with cash, spending robustly on both services and goods and keeping the economy humming. But supply chains are arguably in the most dire condition since the start of the pandemic."


Now, just weeks before the holiday season, Kowalski points out that both the Producer Price Index (PPI) and the Consumer Price Index (CPI) were up in the most recent August reports. However, the PPI was up 20% year-over-year, while the CPI was up 5.2%. This shows that while businesses are paying more for inputs, they have only been passing a small percentage of that onto customers. Kowalski says that in the last quarter of this year and the first quarter of 2022, many businesses that have been holding off on price increases will finally do so.


How will this shift affect the beef industry? Brian Earnest, lead CoBank analyst for animal proteins, says as more restaurants have opened up for inside dining, the capacity of the industry is being tested.


He believes pressure on the industry will come from two sources. First, higher domestic protein consumption will continue to conflict with tightening supplies.


"Total beef, pork and chicken in cold storage was 20% lower year over year to kick off grilling season, and ending stocks fell another 3% by the end of July," he reported. At the same time, he noted, international demand is robust, with combined U.S. exports of beef, pork, and chicken forecast to hit records.


Second, Earnest says labor shortages will ...