Wednesday, August 10, 2022

Shipping Delays Slowing Sales

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Spokane, Wash. (Jan 8, 2015) — Lower energy prices should boost consumer confidence and discretionary spending in 2015; positive news for the Northwest’s nursery and forest products industries. Falling diesel prices should result in lower operating costs for agricultural producers in the longer term. Many Northwest producers face higher shipping costs and slower sales associated with trucking shortages, rail capacity limitations and slowdowns at U.S. West Coast ports, precipitated by a labor dispute. Containerized shipping is critical to dairy, hay, tree fruit and row crop exports, where delays and missed sales have cost these industries tens of millions of dollars. A contract resolution between the International Longshore & Warehouse Union and the Pacific Maritime Association would bring certainty to markets and promote additional shipments. However, a quick resolution  is not expected.  

 

The following highlights depict the general health of select industries included in Northwest Farm Credit Services’ Knowledge Center Market Snapshots, which are available at northwestfcs.com/resources.

 
Beef — The U.S. cattle market experienced an exceptional year in 2014. Prices remain strong across all cattle classes in the New Year, supported by short supplies and record beef prices. However, price volatility and the rising cost of feeder cattle has resulted in extreme margin calls and increased capital needs for cattle feeders with hedging programs. Volatility in the cattle futures market made news following several days of ‘limit down’ movement in mid-December. Analysts attribute most of the decline to investment fund managers liquidating positions at year end for tax reasons, and expect the market to stabilize in 2015.

 
Dairy — Following a year of robust profitability, bearish global markets and dim export prospects are pressuring U.S. milk prices lower in 2015. Milk prices peaked this fall and have since fallen nearly 20 percent. Class III Milk Futures through June 2015 foreshadow additional declines, with prices expected to bottom near $15 per cwt. However, Northwest dairies are well positioned to managing lower milk prices, supported by strong 2014 profits. 

 
Hay — Northwest hay markets entered a lull, with prices under downward pressure heading into 2015. Demand for hay is expected to drop in 2015 as dairies position for lower milk prices, and hay exporters contend with a higher value U.S. dollar, slowdowns at West Coast ports, and a change in the Chinese government’s hay testing protocol that has curbed shipments to that market. An end to the port slowdowns and favorable negotiations with the Chinese would bolster the outlook for hay demand and prices. 

 
Wheat — Grain markets remain volatile, but the current marketplace is providing profit opportunities for growers. Wheat prices received a boost from Russia’s announcement of a wheat export tax that will be levied from February to June. Higher wheat prices are met with lower diesel prices. Northwest FCS’ peer financial benchmarks illustrate the potential impact of lower fuel costs on growers’ bottom lines. Across five years, fuel expenses averaged 6.9 percent of wheat producers’ total operating expenses. Notwithstanding this support, wheat producers face headwinds including a higher value U.S. dollar, ample world wheat supplies and generally favorable new crop conditions.  

 
Potatoes — Open potato prices are above breakeven in the Northwest, but strong 2014 potato production and year-over-year declines in fresh potato exports limit upside market potential. Export challenges are exacerbated by port delays and slowed shipments. Delayed exports are increasing potato processors’ finished product inventories and slowing depletion of raw product inventories. Consequently, earlier concerns surrounding old crop potato shortages are reduced. 

Sugar Beets — Lower fuel prices, improved sugar markets, strong yields and high sugar content support modest sugar beet grower profits in 2014. U.S. wholesale refined beet sugar prices increased throughout the year supported by tightening sugar stocks-to-use, and growers were able to maximize returns from processors with favorable sugar beet crops. Going forward an agreement reached between the U.S. and Mexico in December will limit the amount of subsidized Mexican sugar exports entering the United States. This will protect U.S. farmers and sugar producers from deflated sugar prices associated with oversupply of Mexican sugar. 
 

Apples — A confluence of events is pressuring Northwest apple markets. The largest crop in Northwest history is matched with large U.S. and global crops. Prices hit lows not seen in nearly a decade this season, but are steady to firming as supplies from competing regions in the U.S. decrease. Given significant pressure to ship fruit, export market sales are critical to price support and clearing the pipeline ahead of the 2015-16 crop. Although shipments are ahead of normal, the pace so far has been insufficient to assure the crop will be sold out. Export market growth has been constrained by trade restrictions and slowdowns at West Coast ports.

Wine/Vineyard — Favorable growing conditions throughout the spring, summer and early fall led to record-size Washington and Oregon wine grape crops in 2014. In Washington, the large crop fully utilized many wineries’ harvest processing and fermentation capacities, creating harvest delays in some areas. Similarly, Oregon growers’ and winemakers’ biggest challenge this year was finding fermentation space. Increasingly large Northwest wine grape crops are met with optimism as U.S. wine sales continue to grow. Trends in consumer preferences continue to favor Northwest wines. 
 

Forest Products — U.S. housing starts are the primary driver of U.S. forest products markets. While housing starts continue to fall below expectations, new home construction in 2014 increased to an annualized rate of over one million units for the first time since 2007. Continued economic improvement may lead to an increased number of housing starts in 2015. Meanwhile, lower lumber and panel prices coupled with higher log costs are challenging profitable operations at Northwest mills.

Nursery/Greenhouse — Many nursery and greenhouse operations report that 2014 will be their most profitable year since the downturn of 2008 began. Steady demand for product at higher prices throughout the year contributed to profit increases, and early sales orders for 2015 point toward a positive outlook ahead. While the outlook for the industry is positive – largely influenced by favorable economic factors related to housing and consumer confidence – labor shortages could limit sales next year. An informal poll of Northwest nursery producers this fall reveals that 43 percent view inadequate labor as the greatest threat to the industry.
 

Knowledge Center quarterly Market Snapshots include information on 19 industries and periodic special reports. If you’d like to receive these updates on a regular basis, sign up to receive the e-newsletter version of Market Snapshots at northwestfcs.com/resources. Also available on the resource pages are other Knowledge Center tools, a Land Value Survey and regular columns by Dr. Dave Kohl and Dr. Ed Seifried. 

 

 

 

Source:  Northwest Farm Credit Services

Posted by Jami Howell

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