Drought and livestock disease to pressure food supply chain

decrease font size  Resize text   increase font size       Printer-friendly version of this article Printer-friendly version of this article

U.S. consumers should expect higher grocery store prices as drought and livestock disease have negatively impacted food supply, according to Euler Hermes, the world’s leading provider of trade credit insurance. In addition to domestic constraints now filtering downstream, global supply concerns are likely to fuel the rising trend in commodity prices, especially as global demand continues to increase.

“With a growing international dependence on U.S. food production, the impact of any supply disruption is far reaching,” said Umar Sheikh, food industry expert at Euler Hermes Americas. “The 2012 Midwest drought, the current California drought and livestock disease have all contributed to higher consumer prices domestically and abroad. The industry’s ability to manage such disruptions will determine the impact on consumers’ wallets.” 

click image to zoom From Producers to Consumers

While consumers will absorb some increase in prices, producers will find it difficult to fully pass on the higher input costs. The challenge was already evident in Q1 2014, as producer costs for several commodities increased faster than consumer prices. This may result in lower retail margins.

The California drought’s impact is also expected to become more severe later this year, producing lower-than-normal yields for products such as avocados, grapes, lettuce, tomatoes and tree nuts. Further, there is no relief in sight for high consumer beef prices. Ranchers processed livestock in greater numbers over the past two years, as feed prices skyrocketed due to the Midwest drought. Cattle inventories have reached lows not seen since the 1950s, when the U.S. population was roughly half of what it is today. It will take several years to rebuild herds. Pork prices are also expected to remain high due to an outbreak of the porcine epidemic diarrhea virus (PED or PEDv) beginning in 2013, detected in over 4,700 farms and 27 states to date.

click image to zoom Surging International Demand

With total agri-food exports exceeding $144 billion in 2013, the United States has become one of the largest food producers in the world. Economic growth, dietary changes and urbanization in emerging countries are expected to drive continued demand, while population growth and demographic changes will play a crucial role in long-term growth.

Demand remains strong, particularly among the growing Asian middle classes. While increasing U.S. exports will impact U.S. consumer prices, developing international markets present growth opportunities for U.S. producers in 2014 and beyond. The most promising export destinations: Canada, China, Hong Kong, Indonesia, the Philippines and Turkey. All have seen agricultural product imports increase more than 25 percent over the past 5 years.

click image to zoom “As international demand for U.S. agri-food increases, growers and producers will also need to manage the risks associated with exports and cross-border business relationships,” said Sheikh. “U.S. food suppliers focusing on domestic trade relationships will also need to consider that the short- to medium-term margin compression could increase the risk of payment defaults and insolvencies.”

For more information, please refer to Euler Hermes’ Industry Outlook: Food

Buyers Guide

Doyle Equipment Manufacturing Co.
Doyle Equipment Manufacturing prides themselves as being “The King of the Rotary’s” with their Direct Drive Rotary Blend Systems. With numerous setup possibilities and sizes, ranging from a  more...
A.J. Sackett Sons & Company
Sackett Blend Towers feature the H.I.M, High Intensity Mixer, the next generation of blending and coating technology which supports Precision Fertilizer Blending®. Its unique design allows  more...
R&R Manufacturing Inc.
The R&R Minuteman Blend System is the original proven performer. Fast, precise blending with a compact foot print. Significantly lower horsepower requirement. Low inload height with large  more...
Junge Control Inc.
Junge Control Inc. creates state-of-the-art product blending and measuring solutions that allow you to totally maximize operating efficiency with amazing accuracy and repeatability, superior  more...
Yargus Manufacturing
The flagship blending system for the Layco product line is the fully automated Layco DW System™. The advanced technology of the Layco DW (Declining Weight) system results in a blending  more...
Yargus Manufacturing
The LAYCOTE™ Automated Coating System provides a new level of coating accuracy for a stand-alone coating system or for coating (impregnating) in an automated blending system. The unique  more...
John Deere
The DN345 Drawn Dry Spreader can carry more than 12 tons of fertilizer and 17.5 tons of lime. Designed to operate at field speeds up to 20 MPH with full loads and the G4 spreader uniformly  more...
Force Unlimited
The Pro-Force is a multi-purpose spreader with a wider apron and steeper sides. Our Pro-Force has the most aggressive 30” spinner on the market, and is capable of spreading higher rates of  more...
BBI Spreaders
MagnaSpread 2 & MagnaSpread 3 — With BBI’s patented multi-bin technology, these spreaders operate multiple hoppers guided by independent, variable-rate technology. These models are built on  more...

Related Articles

No matching related articles at this time.

Comments (0) Leave a comment 

e-Mail (required)


characters left

Pacesetter Grain Hopper

The Pacesetter Gain Hopper features original and innovative ideas like the patented RollerTrap™, the industry’s easiest to open and maintain trap ... Read More

View all Products in this segment

View All Buyers Guides

Feedback Form
Feedback Form