Five Bulk Material Headlines You May Have Missed in June
As we begin the third quarter of 2023, the stock market anxiously awaits future changes in demand and corresponding interest rates. As interest rates go up, some capital projects are being put off. Manufacturing is slowing in some industries but construction is booming for infrastructure, silicon chip and EV battery projects. The government is in full-inflation fighting mode, as they try to prevent a recession in early 2024. Here are five headlines you may have missed.
Dry Spell Threatens Corn and Soybean Crops, Futures Soar
The second week of June witnessed a surge in corn and soybean futures as dry weather persisted across the US Corn Belt, negatively impacting crop conditions. However, prices ended the week on a lower note due to profit-taking and a more favorable forecast. This enduring dry pattern during crucial development periods for row crops raises concerns about diminished production during the upcoming harvest. Let's delve deeper into the situation and its implications.
Analysts express worry over the extended dry period during key development phases could reduce the 2023 harvest. According to the US Department of Agriculture's (USDA) weekly Crop Progress report issued on June 20, the good-to-excellent condition rating for the US corn crop in the 18 principal production states declined from 61% to 55% within a week. This decrease continues a downward trend from the 64% rating on June 4 when planting was nearly complete. Notably, the current rating is significantly lower than the 70% reported during the same period the previous year.
The impact of the dry spell on corn crops is noticeable across various states. In Iowa, the top corn production state, the good-to-excellent condition rating dropped from 77% in late May to 59% by June 18. Illinois witnessed an even more dramatic decline, with ratings falling from 69% on May 28 to a mere 36% by June 18. Nebraska and Minnesota also experienced deteriorating conditions during the same period, with Nebraska's rating slipping from 62% to 59% and Minnesota's declining from 75% to 67%. These declining ratings have significant implications for corn futures, which surged to six-month highs on June 21, reaching a level not seen since January 2018.
While there is potential for great production if "normal" weather conditions prevail in July, August, and September, concerns remain regarding the possibility of a weather pattern last seen in 2012, which caused significant losses. Initial winter wheat production forecasts for 2023 were released in May, and the first spring wheat forecast will come in July. The USDA will issue the initial estimates for corn and soybean production in August, providing a clearer picture of the potential impact of the dry spell on the upcoming harvest.
The enduring dry pattern across the US Corn Belt for the last few years, poses significant challenges to future corn and soybean crops. With declining condition ratings and reduced soil moisture, the potential for diminished long term production is a cause for concern. The surge in corn and soybean futures reflects this market apprehension. While spring wheat conditions may improve with more favorable weather, the upcoming forecasts and USDA estimates will provide a better understanding of the long-term implications of this challenging situation.
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Chemical Production on the Rise This Past Spring
The Global Chemical Production Regional Index (Global CPRI) increased by 0.4% in April, following a 1.5% rise in March, according to the American Chemistry Council (ACC). The U.S. Chemical Production Regional Index (U.S. CPRI) also saw a 0.5% increase in April.
The indices, measured on a three-month moving average basis, show growth in chemical output for most regions worldwide, except for South America. Although global production remains lower compared to the previous year, Europe, Asia Pacific, and Africa & Middle East experienced higher output.
In the U.S., the gain in chemical production can be attributed to various chemistries recovering from weather-related production outages and refinery maintenance in the first quarter. Notably, the motor vehicle production market showed improvement, which positively impacted the chemical industry. The analysis by ACC revealed that an average vehicle contains over $4,000 worth of chemical products.
The Global CPRI tracks chemical production for 55 countries, sub-regions, and regions, while the U.S. CPRI focuses on seven regions within the United States.
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Bread Prices Drop for the First Time Since September 2022
The latest data from the Bureau of Labor Statistics of the US Department of Labor reveals a decrease in the average price of white pan bread and whole wheat bread in May. This marks the first month-over-month drop in prices since September 2022 for white pan bread and August 2022 for whole wheat bread. The national average retail price of white pan bread was 195.1¢ per lb, down 3.8¢ from April but up 34.5¢ from May 2022. The average price of whole wheat bread was 250.2¢ per lb, down 5.1¢ from April but up 28.2¢ from May 2022. So despite the recent decrease, prices in 2023 remain significantly higher than one year ago.
In addition to bread, the data also includes information on other food items. The national average price of family flour in May was 54.4¢ per lb, showing a slight increase of 0.2¢ from April and an 8.8¢ increase from the previous year. The price for spaghetti and macaroni decreased slightly by 0.3¢, with a national average of 145.8¢ per lb in May, but still showing a 16.7¢ increase from May 2022. Chocolate chip cookies were priced at 515.3¢ per lb, down 4¢ from April but up significantly by 64.8¢ from the previous year. Lastly, the average price of white long-grain rice increased by 1.7¢ from April, reaching 99.7¢ per lb in May, and showed an 8.8¢ increase from May 2022.
These price fluctuations reflect the ongoing changes in food markets and can be influenced by various factors such as commodity prices, production costs, and market demand. Consumers may find these price adjustments significant when planning their grocery budgets and assessing overall food costs. It's important to keep track of these trends to make informed purchasing decisions and adapt to any potential changes in the food market.
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FDA’S Human Foods Program Launches
The Food and Drug Administration (FDA) is in the process of establishing the Human Foods Program, which will merge the Center for Food Safety and Applied Nutrition (CFSAN), Office of Food Policy and Response, and certain aspects of the Office of Regulatory Affairs (ORA). To support the creation of a robust Human Foods Program and Office of Regulatory Affairs, the FDA has proposed several changes to the ORA.
The proposed changes aim to address the evolving landscape of the human food industry, including the increasing complexity of consumer preferences, products, and manufacturing processes, as well as the growing public health needs. By modernizing and streamlining its food program, the FDA seeks to overcome the challenges posed by these changes.
One of the proposed changes is to define the ORA's mission as conducting investigations, inspections, and imports for all FDA-regulated products in collaboration with the Human Foods Program. This alignment will foster synergy and ensure efficient coordination between the two entities. Compliance functions currently managed by the ORA will be transitioned to the Human Foods Program and the compliance functions of other agency product centers. This consolidation will optimize resource utilization and enhance regulatory oversight.
In addition, certain functions of the Office of Operations' Office of Security and Emergency Management will be transferred to the ORA. This includes the Office of Emergency Management, which plays a vital role in coordinating responses to emergency situations related to FDA-regulated products. By consolidating these functions, the FDA aims to enhance its emergency preparedness and response capabilities.
The proposed changes have received support from industry stakeholders, including the Consumer Brands Association. They appreciate the FDA's efforts to unite and elevate the Human Foods Program, entrusting the deputy commissioner with the authority to guide its strategic direction. The consolidation of responsibilities, including budgetary control, will ensure a common mission across all components, including the animal foods program. Stakeholders also welcome the FDA's commitment to address areas of duplication and refocus the Office of Regulatory Affairs on its core business of inspections and investigations.
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U.S. Organic Crop Prices Set to Drop
A recent report by Mercaris, a market data service and online trading platform for organic and non-GMO agricultural commodities, reveals a bearish turn for the US organic crop market. The report states that US organic soybean production and carryover stocks at the beginning of the 2022-23 marketing year reached a record high of 14.1 million bushels, marking a 14% increase from the previous year. This surge in production, coupled with robust imports, has led to an oversupply situation, causing a significant drop in US organic soybean prices from $35 per bushel to $22.93 per bushel in recent months.
The report also highlights that the 2023-24 US organic corn prices are facing pressure due to an anticipated 10% increase in production. Ryan Koory, the vice president of economics at Mercaris, states that this price decline is expected to impact the industry. In response to these market conditions, Mercaris projects an 18% decrease in harvested organic soybean acreage for 2023, hoping that this reduction will help stabilize prices.
However, the decline in organic soybean acreage opens up possibilities for the expansion of organic spring wheat. Mercaris forecasts a 3% increase in acreage for the US organic spring wheat crop. Overall, while total US organic wheat acreage for all classes is expected to decline by 2% due to severe drought, improved conditions indicate a likely increase in production and yields despite the reduction in acreage.
The oversupply situation in the organic crop market is creating opportunities in the organic feed markets, which could provide some price support. Mercaris expects a 1% uptick in organic feed demand for the 2023-24 period. These developments indicate that while the US organic crop market is currently experiencing challenges due to increased production and oversupply, there are potential areas of growth and support in other sectors such as organic feed.
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