Freight fright for farm inputs
The global freight market has experienced a year of rapid growth due to increased economic activity post-lockdown accompanied by exponential demand.
However, supply chain disruptions, capacity constraints and covid continue to impact on global logistics with a direct bearing on the availability and cost of inputs.
Earlier in the year, container scarcity, labour shortages, ongoing covid restrictions and congestion at ports reduced supply capacity, which then struggled to cope with the surging demand for container freight. This led to record container prices and the unusual situation of bulk vessels reportedly being chartered to carry containers. Pressure on the availability of larger bulk vessels has since eased slightly and the biggest challenge currently rests in the coaster market for smaller vessels, which remains rock solid, making it increasingly difficult to procure nearby freight. As a result, costs have reportedly skyrocketed to almost four times higher than the previous five-year average, which is impacting on grain markets for wheat and barley in particular.
Fertiliser is another major area of concern as the high energy prices have forced many manufacturers to cease production.
With no production capacity on the island of Ireland, all fertiliser supplies arrive by sea and will incur high freight costs on top of prices already massively overcooked as the different regions of the world battle it out to secure the limited tonnage available. Analysts envisage that global distribution problems will continue well into 2022 as the market continues to be short of vessels, the impact of which will be felt across a wide range of materials.
This is contributing to the perfect storm of price increases faced by local livestock farmers, led by grain markets which remain firm with strong global demand for wheat set against tight stocks. Whilst a bumper Australian crop is anticipated, harvest delays due to rain from the weather phenomenon known as La Niña are causing quality concerns.
Wheat prices have been escalating since July, but took a tumble in recent days due to uncertainty around the new covid variant, although this is likely to be short term in nature.
Meanwhile, Russia has imposed a floating tax on exports in an attempt to maintain domestic grain stocks – this is likely to result in higher demand for EU wheat and a further tightening of stock levels in Europe. Recent Rabobank analysis has suggested that high prices could create the potential for the grain area in Europe to expand in the near future.