AG Forecast: Input costs expected to level out in 2022
Posted on Feb 09, 2022 at 19:00 PM
By Maria M. Lameiras, CAES News
The lingering effects of the global pandemic continue to ripple through Georgia, with persistent supply chain issues and inflation affecting bottom lines. But a strong overall economic outlook and confident consumer spending signal recovery in 2022, according to UGA agricultural economists at the 2022 Georgia Ag Forecast, held at the UGA Tifton Campus Conference Center and virtually on Jan. 28.
Overall, average incomes are about 8% above pre-pandemic levels and high rates of savings accumulated during the pandemic means consumers are well-positioned to absorb currently inflated prices, said Jeffrey Dorfman, state fiscal economist for Georgia and a professor in the Department of Agricultural and Applied Economics in the University of Georgia College of Agricultural and Environmental Sciences.
“In January 2020 Americans were saving about 7% to 8% of their income, then you get to the pandemic, and it spikes up to about 33%,” said Dorfman, adding that concern about job security during the pandemic led many people to increase the amount they were saving, which was bolstered by federal stimulus aid payments. “The rate of savings didn’t drop below 10% to near normal levels until September 202. Just in Georgia that adds up to about $75 billion. This is literally the first time in United States history that we had a recession and people got richer. Savings went up, credit card debt went down, and the average Georgian’s credit score went up six points. That’s not normally how it works in a recession.”
All of those factors position individuals to better absorb the economic slowdown expected as pandemic-related federal aid stops and federal interest rates continue to rise in the coming months, causing incomes to drop an average of 2% as a result, he said.
“Normal economic growth can replace that in about six to nine months, so what I expect is an economic slowdown as we go through the end of winter into the spring and summer, then we will sort of return to normal again,” Dorfman added.
For agricultural producers, sharp increases in costs — an average increase of 41% for fertilizer, a 35% increase in shipping costs and a 32% rise in the cost of pallets — experienced in 2021 are likely to level out to some degree, but Dorfman encouraged producers to use caution when calculating future returns on 2022 crops.
“I don't think prices are going to keep going up from here, but they could easily stay at these levels,” Dorfman said, adding that good commodity prices and comparatively low interest rates will help producers weather the 2022 season with careful planning. “Normally (producers) have a number in their head of what a good price is for your peanuts and your corn and your cotton and your squash and your blueberries. You also kind of have a feel for your production costs … but this mental model can’t go this far away from normal and remain accurate.”
Dorfman suggests that all producers “put pencil to paper or build an Excel spreadsheet — you need to have the price you pay for every input and how much of every one of those inputs you use per acre or per bushel or per pound on what you're producing.”
“You need to figure out if that box of squash costs me $20.53 to produce, I'm looking for a price of at least $22 a box before I agree to a price because the formula in your head just won't work when prices are double what they were,” he said. “Make sure you have crunched the numbers, and you can’t just do it once a year like they used to. You have to do it every time you buy, every single time those prices change, recompute your break-even price.”
Georgia producers are encouraged to take advantage of the crop comparison tools available from the UGA Department of Agricultural and Applied Economics and UGA Cooperative Extension. The tools help producers run side-by-side comparisons of potential costs and returns on various crops.
Demand is currently strong for dairy products for all needs in domestic and export markets. Sales of manufactured dairy products are not as strong, so milk production both in the U.S. and overseas is tightening due to lower prices and herd cycling. Supply chain issues and inflation may impact dairy prices. Per capita milk consumption has grown substantially since the 1980s, increasing to more than 100 pounds per person in the U.S. including all dairy products.
While cheese consumption dipped between 2019 and 2020 due to restaurant closures during the pandemic, it is estimated that cheese consumption will rise to about 12.5 pounds per person in the U.S. in 2022. Yogurt sales are strong and steady, while butter prices are increasing marginally. Fluid milk consumption has declined steadily over time and that trajectory has become increasingly steeper since 2010, however it has been flattening out over the past two years. While milk production expanded then contracted rapidly in 2020 and 2021, production will grow at a much slower pace and milk prices are expected to rebound in 2022.
Beef and Pork
Demand is strong across all meat categories, including beef, pork and poultry. Elevated retail prices for meat are likely to remain high throughout 2022 due to inflation and strong demand both domestically and for exports.
While export demand for pork is still very high as a result of the swine flu epidemic in Asia, the pork industry is rebuilding in the region, which may signal a decline in demand over the next few years after a period of 3.5% to 4% growth each year over the past several years. Pork production and prices are expected to decline slightly in 2022. Feed prices will moderate in 2022, but non-feed production costs may rise due to inflation. Export demand will remain strong for the immediate future.
Beef cow numbers will continue to decline as the current herd liquidation continues, and demand will remain strong, which means high beef prices in the grocery stores are likely to continue to trend upward throughout 2022. Beef cow and calf prices will improve at all levels of the production chain. Feed prices will moderate as corn and soybean prices decline.
Broiler production for 2021 is forecast slightly ahead of the prior year, with a modest increase driven by higher live weights but materially offset by slaughter reductions where labor shortages have persisted. Higher input costs, principally labor and feed grains, are creating significant cost pressures for integrated broiler companies, thus absorbing a significant share of the added revenues being generated by higher market prices. Leading indicators suggest moderate production increases in 2022, but this will be heavily dependent upon continuing improvements in overall labor availability.
Demand is extremely high and stocks throughout the industry are very low which, coupled with labor shortages, have driven up the price of poultry to consumers. It is likely that prices will remain high through 2022.
During the pandemic, there was a 75% drop in the quantity of clothing and accessories purchased in stores, but there was a record level of online shopping, with the rate 19% higher in November 2021 compared to November 2019. High consumer demand for apparel products translates into very strong demand for cotton and cotton products from U.S. and global markets. Due to low cotton prices, fewer cotton acres were planted in Georgia in 2021, but good weather resulted in a record high per-acre yield. The cost of production is expected to rise by 24.7% in 2022 over 2021. Driven by stock market futures, cotton prices reached a high of $1.20 per pound in 2021 and were at .90 cents per pound in November 2021. In 2022, cotton prices are projected at .80 to .90 cents per pound.
U.S. and Georgia peanut farmers planted fewer peanuts during 2021, but abundant yields may lead to the third-highest U.S. production on record. Georgia forward contract prices are expected to be down with a season average price of $440 per ton. Peanut acres will be stable to up. Peanut disappearance in 2021-22 is projected to remain near the record high seen during the 2020-21 marketing year at almost 3.2 million tons, supported by increases in food use.
Corn and soybeans
Georgia saw 480,000 acres of corn planted in 2021, compared to 93.4 million acres in the U.S. overall. Georgia had a record yield of 182 bushels per acre, or just under 81 million bushels, and U.S. yield was 177 bushels per acre for an estimated 15.12 billion bushels. There has been an increase of planted acres of corn in Georgia since 2017 and yields have been trending upwards. Overall U.S. corn production was higher than consumption in 2021, so ending stocks will go up. Exports are expected to be down in 2022. While input prices are high, the market is favoring corn over soybeans for the coming year. Georgia corn prices are expected to range between $5.85 and $6.50 a bushel. Food use is expected to be steady in 2022, but feed use is down as higher prices and ethanol consumption remain stable.
Planted acres of soybeans increased in Georgia in 2021 to 140,000 acres, 87.2 million acres planted in the U.S. overall. Yields in Georgia were a record 46 bushels per acre for a total of 6.21 million bushels compared to the U.S. yield of 51.4 bushels per acre for a record total of 4.44 billion bushels of soybeans. Production exceeded consumption for the 2021-22 crop, so the ending stock will increase by about 8%. Prices were at $12.60 per bushel in January, and it is estimated that the Georgia 2022 season-average farm price for soybeans will be $10 to $12 per bushel.
Corn acreage will decrease slightly and soybean acreage will increase slightly in 2022. Corn prices will decline by about 11% and soybean prices by about 15% from 2021 levels. Both corn and soybeans will remain profitable for most producers but net income will decline.
The end of 2021 saw higher commodity prices, but costs for inputs were also higher. The steepest increase in prices was in fertilizers and fuels, while increases in chemicals, labor, land rents, machinery and repairs were expected. Margins will be tighter in 2022, so producers should use risk management tools to estimate their cost of production and breakeven prices and yields.
Georgia may anticipate slight changes in planted acres but will remain close to typical crop rotation. Cotton acres are likely stable to down slightly, peanut acres are likely to increase, corn acres may remain stable, soybeans and wheat acres may be stable to up slightly. Peanut acres are expected to increase between 5% and 10% in Georgia. There may be an increase in corn and soybean acres planted. Cotton acres are expected to remain steady, while there may be an increase in corn and soybean acres.
Fruits, vegetables and tree nuts
Although total vegetable and pulse harvested area increased by 4.4% in 2020 compared to 2019, fresh and processed vegetable decreased by 1.3%. This situation is expected to improve in 2022. Unit value for fresh vegetables decreased by 2.5% while total unit value of all vegetables and pulses also decreased by 2.2%. Both total vegetables and pulses and fresh vegetable values are expected to be strong in the 2022 crop season. Total imports of vegetable and pulses increased by 15.5% in 2020 compared to 2019 while total exports decreased by 4.8%. This gap between imports and exports will continue to increase in 2022.
2021 was a good year for many green industry firms, with many firms seeing increased profits. There are many unknowns going into 2022 that will impact green industry sales, including inflation fears, low to rising interest rates, and the continuance of a strong housing market in Georgia. Green industry sales in Georgia are projected to be similar to 2021 levels.
Timber prices have increased in the U.S. South, along with softwood lumber market share and production capacity. Plentiful timber supplies and capital expenditures are positives. Southern wood-using pulping capacity is relatively flat, while some mills are increasing recycling capacity.
Hospitality and tourism
While both rural and urban counties saw a decrease in hotel occupancy, hotel demand, hotel revenue, and accommodation and food service employment during the COVID-19 pandemic, the impact on rural tourism indicators was not as significant as impacts on urban counties. The lessened impact in rural communities reflected a visitor-experience shift from Georgia’s urban destinations to more rural and nature-based experiences. Currently, both rural and urban communities are recovering at double-digit percentage rates for hotel occupancy and hotel revenue. The current 12-month moving average for both statewide hotel demand and accommodation and food service employment have been steadily improving since spring 2021 and the recovery is anticipated into 2022.
To view the recordings and the complete 2022 Georgia Ag Forecast report, visit www.agforecast.caes.uga.edu. The seminar is sponsored by Farm Credit Associations of Georgia, Georgia Farm Bureau, Georgia Agribusiness Council, Georgia Department of Agriculture and Georgia Grown.