Supply chain issues hitting all segments of ag

DarcyMaulsby /iStock/Thinkstock. grain barge river elevator
This barge on the Mississippi River in eastern Iowa is taking on a load of grain, either corn or soybeans, from area farms.
Ag industry offers insight to the dramatic challenges facing ag sector in getting products to market.

Key ag leaders shared with the Department of Transportation that the most problematic supply chain issues for the ag industry include transportation costs, labor availability, rising energy costs and challenges with obtaining inputs and products for the ag sector.

In response to President Joe Biden’s Feb. 24, 2021, Executive Order on America’s Supply Chains, key participants in the agricultural industry detailed in two letters the key concerns for an industry impacted on multiple levels, one signed by the Ag CEO Council of the 17 top ag groups as well as another written on behalf of the Agricultural Transportation Working Group.

“After many years of low farm prices, recent price increases were poised to help elevate market net returns. Given these supply chain issues, that optimism has faded into a desire to simply not do worse than those lean years,” the Ag CEO Council groups state in their comments. “The supply chains that are critical for inputs and sales of goods face multiple and simultaneous challenges. This has led to higher prices for inputs, lower prices for outputs and, in some cases, the inability to purchase goods or services regardless of price.”

The causes of these supply chain issues have been multifold. Tariffs and the trade war disrupted markets and resulted in higher domestic steel and aluminum prices. Cyberattacks have taken down grain elevators and a packing plant. The West and Upper Plains have suffered droughts, which has reduced forage, increased irrigation needs and lowered river levels. Hurricane Ida closed the Gulf port, slowed Mississippi River traffic and closed chemical plants. Perhaps most significantly, the COVID-19 pandemic has affected almost every aspect of the supply chain, from transportation costs to labor availability, the CEOS write.

Labor

Labor shortages exist on the farm, in processing facilities, and among critical service providers. A National Council of Farmer Cooperative survey found that 77% of responding coops had issues retaining a skilled workforce during the pandemic. Federal food safety inspector shortages limit products that can be sold and shipped, according to the CEO letter.

ATWG adds inadequate labor availability is the largest supply chain constraint facing the U.S. agricultural industry. “ATWG members are unable to fill open positions throughout the production, transportation, warehousing, and processing phases of the supply chain. These shortages are directly impacting our members’ ability to meet consumer demands,” the group writes.

They suggest within the Department of Transportation’s jurisdiction, policies to increase trucking productivity would be helpful as would harmonizing the federal truck driving age limit with the state age limit to provide a more accessible pathway into the trucking industry for drivers aged 18-20. They also wrote that although they support the use of vaccines to fight the spread of COVID-19, but as announced, the Emergency Temporary Standard requiring vaccines could “cause serious labor disruptions for agribusinesses.”

Barges

Hurricane Ida closed the Lower Mississippi River and grain unloading facilities in New Orleans. Grain shipping volumes and prices have yet to recover. Fortunately, eight of the nine facilities operating before Ida are now back online. However, delays from the storm have created a backlog in the transportation system.

Drought in the Upper Mississippi basin has created low flows this year. Fortunately, dredging kept the channel at a depth that enabled traffic to continue with full loads. However, reports of light-loading due to the low river level resulting from the drought are developing, the Ag CEOs write.

Ports and shipping containers

Import volumes have overloaded marine terminals, particularly on the West Coast. This has caused shipping delays, canceled bookings and surcharges. Containers are leaving the U.S. empty rather than being filled and returned with agricultural products, as is normal practice.

Accessibility to export containers has been further limited by record shipping costs and harmful surcharges. Freight charges from Asia to the U.S. have been driven as high as $15,000 to $20,000 per container. By comparison, freight charges for an export container carrying agricultural products typically costs $400-$1,800, the Ag CEOs write. With these factors combined, the ability for farmers and ranchers to fulfill oversees contracts has been significantly impacted, with some estimations nearing $1.5 billion in lost agricultural exports, the ATWG notes.

Trucking and rail freight

More than 70% of all freight movement occurs on trucking and rail. Over the past 20 months, the transportation sector has experienced congestion, equipment shortages and constrained capacity. General freight trucking prices increased by 21% since May 2020 and rail by 28% over the same period. These increases are due not only to increased demand for the shipments of goods in a rebounding economy, but also are linked to increased fuel prices and a continued supply shortage of truck drivers.

According to recent estimates, the trucking industry needs more than 60,000 additional drivers immediately to meet the current demand. This number is expected to nearly triple by 2028 and, when adjusted for expected retirements, the industry would need to hire 110,000 new drivers a year to meet demand. Rail rates on corn, soybeans and wheat, including fuel surcharges, have gone up 13%, 11% and 7%, respectively, since 2016. Similarly, rates to transport ethanol via rail have increased 18%.

The ATWG says it believes it is necessary to seek all available options to increase competition among freight railroads and other transportation modes and provide shippers and receivers with increased access to railroad service information to enable informed business and capital investment planning. The Surface Transportation Board can increase competition among railroads by finalizing a long-pending proceeding on reciprocal (also referred to as “competitive”) switching. Competitive switching will enable shippers and receivers that are captive to one rail carrier, but are near a second rail carrier, to gain access to the second carrier via a short distance switch.

Inland waterways

In 2020, the United States exported 29% of its grains and oilseeds. Of this quantity, more than half transited the Mississippi River System, while 29% moved through the Columbia-Snake River System in the Pacific Northwest, and 5% was shipped through the Texas Gulf, the ATWG notes.

Specifically, the ATWG urges support for the funding and construction of the top 15 lock and dam projects identified by the Army Corps of Engineers in the 2020 Capital Investment Strategy. The CIS outlines a scenario where all 15 projects could be constructed in 10 years at a cost of $7 billion. This includes seven additional 1,200-foot locks on the Upper Mississippi River and Illinois Waterway as part of the Navigation Ecosystem Sustainability Program. Lock and Dam 25 on the Upper Mississippi River is part of NESP, and the top ranked new construction start on this list of 15 priority projects.

Fertilizer

A confluence of factors negatively impacting global fertilizer market supply chains include, (1) global demand for fertilizer, which is largely driven by crop plantings and prices; (2) recent weather events that disrupted domestic production; (3) COVID-19-related deferral of facility maintenance that is now being undertaken; (4) trade actions; (5) transportation costs; and (6) the supply and cost of natural gas.

The primary feedstock and process fuel for ammonia production is natural gas. The recent doubling of the Henry Hub natural gas price is increasing the cost of ammonia production – the building block for all nitrogen fertilizers. In addition, rail logistical issues have been particularly acute this year, compounding the 206% increase in freight rates for anhydrous ammonia over the last 20 years. “In all, a confluence of factors has negatively contributed to the fertilizer market supply chain causing a variety of disruptions and market adjustments,” the CEOs write.

Chemical inputs

Regulatory action by EPA is limiting the availability of pesticides necessary for agricultural production. Transportation issues are creating issues in product delivery, and Hurricane Ida has disrupted a critical region for herbicide production.

Glyphosate prices are up more than 130%, glufosinate by 80%, and 2,4-D by 60%. Most dicamba and nearly all glufosinate, along with many product components, are produced in China, which has been increasing its regulations, the Ag CEOs add. Hurricane Ida closed a major glyphosate plant in Luling, Louisiana at a time when container imports of the product were already down 71% from a year earlier.

Energy

Energy during the early stages of the pandemic was primarily consumed at home. That abrupt change suddenly reversed, and gasoline prices have shot up more than 40% in the past year. Not only does energy affect fuel costs, but also it is an input for chemical, fertilizer and seed production.

Despite direct farm use of fuel expenses serving a relatively small portion of total farm expenses at 1.9% of total production expenses, energy price spikes will impact farmers the most in the production of farm inputs, particularly chemicals, fertilizer and seed, the Ag CEOs explain.

Chemicals, fertilizer and seed production costs represent the largest share of major input expenditures for farms in 2020 at about 17.5% of total expenditures. From 2019 to 2020, chemicals went up 6% in price while fertilizer increased 9%. Both chemicals and fertilizer are at their highest cost for the last five years.

“If energy prices continue to rise, there will likely be a ripple effect that will cause the total cost of production for farm inputs to also rise. This is because energy is used to produce chemical, fertilizer and seed products globally. Farmers and ranchers are already bracing for increased costs in inputs for the next several years due to these economic impacts and more. As costs rise, the potential to make a profit or break even lessens,” the Ag CEOs write.

Equipment and parts

Steel prices rose dramatically during the pandemic due to both demand and tariffs levied on multiple steel products in August 2021. And, a lack of microchips stemming from COVID-era demand for laptops and other home electronics has forced many farm equipment manufacturers to halt production, creating delays in shipping new equipment that sometimes last a year or more. In addition, parts needed to repair equipment may not be available.

Water availability

An estimated 75% of the Western U.S. and the Dakotas are in severe drought. Ranchers have had to liquidate portions of their herds, and irrigation costs have increased.

Read the full comments from the Agricultural Transportation Working Coalition here and the Ag CEO Council comments here.

TAGS: Exports
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