NIGTA Feed Forum: Supply issues drive up input costs
The combination of COVID 19 disruption, additional costs relating to compliance with the Northern Ireland Protocol and the relentless demand from China across a wide range of commodities is driving up prices in virtually every sector of the economy.
Commodities affected include steel, timber, lubrication oil and a wide range of everyday consumables. A global shortage of electrical circuits is also impacting on the manufacture of plant and equipment requiring complex electronic controls.
The vulnerability of global supply chains is becoming increasingly evident as production capacity in many key areas has become concentrated in a few very large scale businesses.
Transport and logistics have been a key factor with disruption to shipping due to low water in Argentina and the recent blockage in the Suez Canal causing shipping schedules to slip out of position and cause major delays in movements of all materials. Sea freight costs have almost doubled as shippers compete to secure available vessels with container freight capacity proving particularly difficult to secure.
Feed material markets are being driven by the more normal variables such as weather events - specifically drought in South America which is causing concerns about the Safrinha maize crop in Brazil. This will reduce exports from these regions, creating an increased demand for the US crop and with Chinese purchasing from the US projected to keep increasing, continued support for prices is expected. The Chinese have emerged as the world’s big buyers of maize and reports that their native wheat crop is not coming up to expectations fuels concerns that this will be a continuing trend. The previously strong global maize stocks which had kept a lid on world grain prices in recent years are definitely in the past and the surge in the maize price was inevitable in the face of insatiable Chinese demand. The beneficial maize discount of recent years is greatly reduced and it is now trading at similar prices to wheat.
The re-emergence of global ethanol demand also serves to keep a firm tone to grain markets as the feed v fuel debate makes a return. The UK surplus of barley which has weighed on the local market has been largely used up and prices have also recovered as stocks have reduced.
Weather stories and harvest speculation will continue to drive volatility with recent easing of futures prices in some markets unlikely to indicate any major change of direction. The fundamental concerns about supply in the face of strong demand will set the tone of global markets for the foreseeable future.