Seed World

Supply Chains on the Right Trajectory for Correction

After learning so much about the inflation in the U.S. — it’s time to answer the question everyone’s been asking… Will supply chains ever correct themselves?

Well, the answer is looking positive.

“A number of things here indicate substantial problems still exist for our supply chains, at least as of March 2022,” says Allan Gray, director of the Center for Food and Agricultural Business at Purdue University. “But there’s a couple of signs I want to point out that are kind of interesting.”

To start, Gray says to look at ocean freight rates. While the rates are still quite high — particularly between the U.S. and China — there’s a trend that the rates are coming down. But not only are they coming down in that specific region, but globally. Freight rate and ocean freight rates starting to come down suggests bottleneck in freight isn’t fixed, but it’s improving.

On land, trucking rates are coming down as well. The downside is, fuel surcharges are going up.

“That’s the difference between the two, and it’s an important thing to keep in mind,” he continues. “But, it’s a clear indication that overall, trucking rates are coming down. Why? Despite what the news tells us, we have ore drivers in our fleet now than we did before.”

Fuel surcharges, however, are still increasing due to a price fuel problem. National gas price averages as of July 11 were $4.69 according to AAA. However, that’s a stark difference than gas prices a month ago, which were averaging around $5.004 nationally for regular gas.

And though gas prices are still considered nationally high, Gray says both the lack of truck driver problem and the gas fuel price problem are beginning to fix themselves.

In addition, when it comes to inventories, supply chains are beginning to correct themselves as well.

“We’ve rebuilt a substantial amount of our retail inventories responding to this boom in demand that came out of COVID,” he says. “We now may have the highest retail inventories we’ve had in quite some time. This is an indication that while our supply chains have a lot of challenges left in front of them, there are signs that they’re loosening and beginning to correct themselves.”

In agriculture, however, there are still a few challenges — including a low global stock of wheat.

“Ukraine matters a lot to global stocks,” Gray says. “It’s the lowest it’s been since 2012, even including Ukraine’s stock of grain.”

This will be a challenge in the near future for commodities — but in the U.S., that might mean high commodity prices could likely remain, he continues. The problem, however, comes into feeding the globe. Projection-wise, February 2024’s corn commodity prices are still predicted to be well above $6.50 a bushel.

“That’s two years from now, and that’s nowhere close to reverting to the mean — which suggests that our global situation for production is going to be tight for a period to come,” Gray says. , noting that this might not be due to supply chain issues, but other issues such as weather and conflict that prevent the ability to rebuild stock levels.

As things continue to rapidly change, make sure you stay ahead of the game by paying attention to the economic trends globally.