Supply chains are arguably in the worst shape since the start of the pandemic, according to a report released this month from CoBank’s Knowledge Exchange.
Lead times for manufacturing products recently reached record highs. And there doesn’t seem to be much relief in sight, at least through this year.
“Supply chain snarls are likely to persist well into 2022, and so will elevated inflation,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange division.
The issues are visible around the country, from bare shelves at some stores and a shortage of workers to a massive backlog of container ships waiting to unload at the Port of Los Angeles – the busiest container port in North America.
About 250,000 containers were waiting to be unloaded off the West Coast as of early October, but the docks were full due to a shortage of truck drivers. Only about half of truck drivers registered to do business there continued weekly trips to the docks as of the first week of the month, according to Gene Seroka, executive director of the Port of Los Angeles.
The White House announced Wednesday that Walmart, FedEx and UPS will move to working 24 hours a day, seven days a week and that the Port of Los Angeles will operate 24/7.
A backlog of containers waiting to get loaded from rail to trucks also developed in Chicago in recent months. All seven Class 1 railroads pass through the Windy City, making it a key destination but also a natural chokepoint.
The persistent supply chain disruptions and labor shortages are adding significant costs to business operations, and consumers will feel these effects through higher prices for months to come, according to CoBank.
“The latest producer price index data for August was up 20% year-over-year, while the consumer price index increased just 5.2%,” Kowalski said. “So, it’s clear that many businesses are passing only a small portion of those cost increases on to the final consumer. We expect that will change in the months ahead and many businesses will raise prices.”
Farmers are already feeling the pinch, as evidenced by historically high input prices this fall. Recent University of Illinois farmdoc projections predict record-high non-land costs for corn and soybean production next year in the state.
“We’re in an inflationary environment now with high labor costs and there’s strong demand out there,” Gary Schnitkey, U of I professor of farm management and Soybean Industry Chair in Ag Strategy, recently told FarmWeek. “It’s a combination of factors (driving input costs).
“Rising input costs make it difficult for farmers to remain competitive in global markets,” he noted.
Corn, soybean and wheat prices declined from third-quarter highs, but will likely rebound due to tight supplies and rising demand for soybean and vegetable oils, CoBank predicts. But the export picture remains cloudy near-term as some grain terminals in the U.S. Gulf are just beginning to recover from Hurricane Ida.
Meanwhile, returning demand from the food service sector provided strength in the U.S. meat and poultry complexes through summer. While the pent-up demand has been a tailwind for the meat industry in recent months, the full effect of inflation could test consumers’ appetite for meat in the fourth quarter, according to the CoBank report.
What about the worker shortage in many sectors? Unemployment dropped from 5.2% in August to 4.8% in September – an 18-month low. But, that was due in part to people leaving the workforce.
Overall, U.S. employment remains about 5 million jobs below the peak early in 2020, just prior to the pandemic.