At the start of 2022, Gro put together a Watchlist with our predictions for nine major themes for agriculture in the year just ending.
Today, Gro is looking back at our predictions for 2022 to see what we got right and where we missed the mark during a tumultuous year that saw challenges ranging from the Russia-Ukraine war to ongoing food price inflation to extreme weather disruptions.
Tomorrow, December 21, 2022, we will publish our Watchlist for 2023, with forecasts for food price inflation, Chinese import demand, grain and oilseed inventories, fertilizer prices, and more in the year ahead.
Gro uses the data and our models in the platform to assess the principal factors that will determine the direction of agricultural markets and inventories and project what 2023 holds in store.
What We Got Right
Food Inflation Will Continue ✓
What we predicted: Gro’s US Food Price Index, currently up 24% year over year, is at its highest level since the COVID-linked spike of mid-2020, underscoring the risk that food price inflation will be an ongoing issue.
What we’re seeing: The world is entering a third year of high food price inflation, and issues - from drought to war - will likely keep prices elevated. Even though commodity prices have retreated from their peaks, poor growing conditions, high fertilizer prices, and a strong US dollar might mean historically high prices for at least another growing season.
Wheat Supplies Will Remain Tight ✓
What we predicted: Global demand for wheat is expected to remain robust in 2022.
What we’re seeing: Record heat waves in Europe and India, along with droughts in Argentina, significantly curtailed global wheat production. North America’s wheat crop recovered in 2022, and Australia's production has remained strong. But Russia’s invasion of Ukraine, and the supply disruption that it unleashed, will impact wheat supply for some time.
La Niña to Threaten South American Soy and Corn Crops ✓
What we predicted: The La Niña global weather pattern is back for a second year, and this could have big ramifications for 2022 crops around the world. In South America, drier than normal weather could once again reduce harvests of soybeans and corn.
What we’re seeing: La Niña did in fact result in adverse/dry weather in South America. Drought conditions, according to Gro’s GDI, were high in both Brazil and Argentina during the first half of the year, and both countries’ soybean crops suffered. In Brazil, production dropped significantly from the year before (-12.5MMT or -9%, according to USDA), coming in well below expectations. Argentina’s soybean crop also shrunk compared with the previous year (-2.0MMT), leading to the lowest production in the four years.
China’s Import Growth Will Slow ✓
What we predicted: China fueled much of the increased demand for world food supplies in recent years. Now, with the country’s hog population fully recovered from the 2018 African Swine Fever (ASF) outbreak, China will have lower pork import needs. However, China will still need to import large quantities of feed grains for its maturing hog herd and as its hog industry becomes more industrialized, although the growth pace for feed grain imports will slow.
What we’re seeing: From Jan, 2022 to Oct, 2022, China imported 1.3 million tonnes of pork, a decrease of 57% year on year. Gro predicted that China’s need for grain imports will remain robust, and in 2021/22, China imported 56 million tonnes - the second highest in record after 2020/2021, a year when China’s grain imports reached 64 million tonnes. We also predicted that China’s domestic grain prices will remain high in our 2022 report, and corn and wheat prices reached historical highs this year. Lastly, for China we predicted that year-over-year food-grade wheat import volumes would surpass 2021’s levels, and this also came to pass. Since Oct 2021, wheat prices have traded higher than corn, in part because it is more economical to import food-grade wheat than it is to import feed grade.
Steep Coffee and Sugar Prices Will Persist ✓
What we predicted: Soft commodities saw some of the largest price increases in 2021, and coffee was one of the biggest gainers, rising 63% during the year. Heading into 2022, we predicted that a cup of joe would get more expensive as grocers and coffee-heavy restaurant concepts pass on higher coffee prices.
What we’re seeing: Soft commodities like coffee, cocoa, and sugar traded quite high for much of 2022, especially in the first half of the year, and certain soft commodity prices may stay elevated into 2023.
In sugar, a 13% year-over-year drop in global ending stocks of sugar is forecast for 2023. Since mid-September, sugar prices have been reflecting the expectation of tight supplies.
For coffee, favorable coffee growing conditions in Brazil at the beginning of this year’s rainy season helped take the edge off prices, and coffee prices started to return to their historical average of around $1.60/lbs in August.
During the 2023/24 marketing year, Brazilian coffee production is expected to decrease as the country’s crop heads into an off-year cycle. But, as Brazil’s robusta coffee production has nearly doubled in the last five marketing years, total 2023/24 coffee output for Brazil may come in higher than usual for an off-year cycle.
Biofuel Growth Will Continue Apace ✓
What we predicted: The “food vs. fuel debate” for vegetable oils will intensify in 2022 as both production and demand for biofuels increases, especially in the US.
What we’re seeing: This was mixed. The increased demand for global vegetable oil use for biofuels did not materialize, mainly due to a contraction in worldwide palm oil industrial use. However, production and demand for biofuels did increase in the US, where production capacity for renewable diesel doubled to over 2 billion gallons. Also, in the US, soybean oil use for biofuels reached a record high, increasing by 16% from the previous year.
What Surprised Us
Vegetable Oil Demand Growth to Outpace Production Gains
What we predicted: Vegetable and edible oils will continue to be key to food inflation in 2022, after a tumultuous 2021 that saw some of the highest prices in 10 years. Demand is expected to continue to grow due to the need for vegetable oils in both food and fuel.
What we’re seeing: Vegetable oil prices experienced incredible volatility this past year due changing demand pull and supply constraints, including the onset of Russia’s war in Ukraine, an event that took a large chunk of sunflower oil supply out of the market.
The first half of this year saw record high prices across the vegetable oil space. This curbed previously projected net increases in both food and fuel demand globally, but pockets of demand remained strong. For example, soybean oil consumption was pushed higher as the US stepped up efforts to build out its renewable diesel capacity.
In palm oil, year-to-date trade flow numbers out of Malaysia and Indonesia increased by only 0.5%, but palm oil demand looks set to rebound sharply as China loosens its COVID restrictions.
Relief Did Not Come for Protein Prices
What we predicted: Protein prices have been some of the biggest contributors to rising food prices, but Gro expects some relief in coming months. US beef prices rose 18% in 2021, while poultry prices surged 36%.
What we’re seeing: Higher-than-expected corn and soybean meal prices punished chicken and pork buyers in 2022, and bird flu and hog herd contractions may continue into 2023. The US broiler flock is expanding at a moderate pace, but price support from cattle and hog’s shrinking herds will limit discounts for chicken. Additionally, egg buyers’ high input costs have been accompanied by a still-uncontrolled bird-flu outbreak that has disproportionately impacted egg-laying chickens.
US Farmers Didn’t Plant More Acres
What we predicted: The outlook for global crop balances by the end of 2022 will depend on the number of acres US producers dedicate to each crop this spring.
What we’re seeing: Combined corn, wheat, and soybean planted area was down from 2021’s levels, despite higher commodity prices, because sharply higher fertilizer prices discouraged farmers from planting corn. A significant increase in area prevented from planting also factored into 2022’s year-over-year decline.
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