KANSAS CITY — As many look for a restart in 2022 that will leave the challenges of 2021 behind, much as was hoped for heading into 2021 but mostly not realized, there are ample indications that 2022 may be more of the same, at least through the first half of the new year.
The “hangover” from 2021 includes logistics challenges, labor shortages, rising prices and some form of COVID-19. The new challenges include soaring prices for limited supplies of fertilizer, inflation at both the producer and consumer levels and ever-changing weather.
Certain things tend to work themselves out over time, as the market adage “the cure for high prices is high prices” suggests, indicating supplies will be increased at profitable levels. For example, farmers indicate they will plant more durum wheat and oats, both of which are near multi-year highs. The problem is that solution, and fixes for most of the other market and economic challenges, don’t happen quickly, and there are many extenuating circumstances in the global marketplace over which a single part of the market has little if any control.
While the government is debating and pouring money at logistics and other critical areas, the best hope is market participants (such as food manufacturers, farmers, carriers and shippers using their services) will begin to identify solutions.
The pandemic has brought about some changes that likely will be good for industry and for consumers, even if they may be painful in the interim. Food companies (and other industries) have realized that “just-in-time” delivery (which in effect shifts inventory costs to suppliers) may be problematic amid logistics snarls. Changing inventory practices will be expensive, but necessary, and in the short term is adding to ingredient or packaging shortages as well as to logistics demand as manufacturers are seeking to buy more earlier than they immediately need. In the longer term, that should work itself out. But most in the industry forecast little if any relief in logistics for at least the first half of 2022, which will cast a cloud over nearly every aspect of agriculture and food processing.
Another change has been a difficult and expensive shift to sourcing more ingredients and materials locally or at least from nearer countries like Canada or Mexico rather than from China. While the “shop local” trend isn’t new (especially from a consumer perspective), it has taken on greater meaning during the pandemic. Sourcing local reduces freight costs, shortens delivery times and supports domestic industry along with other benefits. Unfortunately, many items and ingredients as of now are not available domestically. Most people would be amazed at how many, often critical, ingredients and materials are available only from China.
Sosland Publishing Co.’s food and bakery ingredient indexes, which are calculated ingredient costs of certain food items using standard industry formulas and prices gathered by Sosland markets editors, give a good overview of the impact on prices for some specific items and bear close watching in 2022. (The indexes appear on the last page of the Ingredient Markets section.)
The index with the largest gain by far this year was for pasta, which in mid-December was up 140% from a year earlier. The huge increase reflected multi-year low durum crops in the United States and Canada. Except for the pork sausage index, increases from a year earlier for the other food and bakery indexes ranged from about 13% to 67% in 2021, reflecting widespread increases in ingredient prices.
How much prices will moderate in 2022, if at all, depends significantly on weather in the world’s major grain and oilseed growing regions, consumer demand, materials prices and availability, labor costs and logistics rates and timeliness, among others.
One thing that most analysts agree on is that markets are poised for greater volatility in 2022, whether trending higher or lower.