Gro's 2022 Watchlist: 9 Major Themes for Agriculture in the Year Ahead

Rising food prices have focused increased attention on global agricultural production and supply chains in the past year. Today, supplies of many commodities remain at their tightest levels in years, and that is likely to prolong inflationary pressure for food well into the new year. 

As a result, 2022 will be another year of unprecedented supply and demand shocks, tight food supplies, and uncertain climate conditions. Given this critical juncture, Gro is predicting what to expect with the most urgent issues affecting global agriculture in the coming year.

Gro Intelligence analyzes the vast amounts of data on our platform to see around the corner of global agricultural developments and to produce machine learning-based predictive models that generate valuable knowledge and insights. Gro is the only platform showing the dynamic impact of climate, economic factors, and agricultural systems on each other.

Here are Gro’s forecasts for global agriculture’s Top 9 major themes for global agricultural markets in 2022:

Food Inflation Will Continue 

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 concern. 

Rising US food prices have global impact, given the outsize role of the US in worldwide food and agricultural markets. 

The Gro Food Price Index — reflecting prices of consumer food items — updates daily and provides an inflation estimate up to six weeks ahead of when official US government data becomes available.

Consumer budgets will remain under pressure from increased grocery bills, either from higher produce and protein prices or as packaged food manufacturers seek to pass on higher input costs to maintain margins. 

Food inflation has taken hold worldwide. For Brazil, Gro’s Food Price Index is at its highest level ever, and is up 63% since the first set of lockdowns in Brazil in May 2020. Food price increases in Brazil have been exacerbated by the depreciation of the Real, which is down 27% over the past two years.

The risk of further food price inflation has prompted some countries such as Russia and Argentina, to restrict exports in order to maintain domestic supplies.

Wheat Supplies Will Remain Tight 

Global demand for commodities is expected to remain robust in 2022 and underpin prices as the world economy continues to recover. 

For wheat, the global supply and demand balance is the tightest it has been in many years, and wheat futures prices rose by double-digit percentages in 2021. Stocks-to-use for major wheat exporting countries combined is at a 13-year low.

Devastating drought in Canada and the US northern Plains sharply reduced spring wheat supplies. Yields in Russia were also impacted by dry weather.

Some recent bright spots in wheat production are Australia and Argentina, and India’s yield is off to a strong start.

Consumers could see higher prices for baked goods such as breads, muffins, and cakes as bakeries feel the impact of increased prices for wheat. Noodles and pasta could see the same upward pressure in prices.

The next important wheat region to focus on is the Northern Hemisphere, where winter wheat crops will emerge from dormancy in late March. 

Drought in the US southern Plains is creeping in on hard red wheat production areas, and Gro’s yield model forecast declined in recent weeks. 

Users should regularly check the US and Black Sea wheat yield forecast models in the coming months, with April to June being the critical growing period for wheat in those regions. 

Some countries have enacted trade restrictions on wheat and other commodities in an effort to quell domestic food price inflation.  

Russia, the No. 1 exporter of wheat, will impose a wheat export quota during the second half of this marketing year, in addition to its floating-rate wheat export tax enacted last June. 

Other major grain exporters, including Argentina, have enacted similar export restrictions to counter domestic inflation, signaling that last year’s trade protectionist trends are continuing into 2022.

The trade restrictions risk further squeezing already tight global supplies and could place a greater burden on competing nations such as the US and Australia to make up any supply shortfalls.

La Niña to Threaten South American Soy and Corn Crops

The La Niña global weather pattern is back for a second year, which 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. 

January is a key month for Brazil’s soybean production and drought is cutting yield forecasts for the southern states of Paraná and Rio Grande do Sul. A production shortfall risks depressing global soybean ending stocks to levels not seen since 2015/16.

Planted area for Brazil soybeans increased 3.7% from last year and production was initially forecast for a new record. But now, the Gro Brazil Soybean Yield Forecast Model should be watched closely over the next month to monitor the impact of drought.

Argentine corn production is expected to decline, according to Gro’s Argentina Corn Yield Forecast Model. Hot and dry conditions are impacting Sante Fe, Cordoba, and Buenos Aires provinces, which produce 75% of the country’s corn.

Any weakness in South American soybean and corn production will impact global trade volumes as other regions are called upon to increase exports. 

US Farmers Will Plant More Acres 

The outlook for global crop balances by the end of 2022 will depend to a large extent on the number of acres US producers dedicate to each crop this spring. 

A banner year for grain prices has US farmers aiming to plant even more acres than they did in a record 2021. But high input costs and uncertain weather risks loom.

Competition among crops will be very strong. Corn and wheat futures prices were both up over 20% in 2021. Oat futures prices were up 89% in the year, and cotton prices rose 44%. Soybean prices, in contrast, lagged the group, up just 2%.

Total US winter wheat and cotton area will expand. Farmers in the northern Plains are likely to increase their cultivated area with a strong revenue outlook for crops like spring wheat and oats.

Farmers’ ability to expand corn and soybean acreage is more uncertain after the combined area for those two crops hit a record high of 180.5 million acres last year. 

Meanwhile, production costs are rising. Supply disruptions and high energy costs have sent fertilizer prices surging, and that could stymie farmer interest in input-heavy crops like corn. 

The USDA estimated in June that 2022 farm operating costs for US corn would increase 2.2% year over year. But Gro expects a bigger increase in costs due to rising fertilizer prices. Fertilizer costs make up between 33% and 44% of a corn producer’s operating costs.

Crop input companies (seed and fertilizer) will be closely watching farmer planting intentions. 

As we head into spring Gro’s Planting Intentions model and Crop Budgets application will allow users to combine the latest revenue and costs data with historical relationships in order to gauge the most likely planted area estimates for numerous crops.

Join Gro for our March 3 webinar, What Will Farmers Plant in 2022?, to hear our predictions for US planting intentions, weeks ahead of the USDA’s Prospective Plantings report. 

Vegetable Oil Demand Growth to Outpace Production Gains 

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 ubiquitous need for vegetable oils in both food and fuel.

Palm oil and soybean oil led the rally, with futures prices for both finishing last year with gains topping 30%.

Supply disruptions hit palm oil in Malaysia and Indonesia, and sunflower oil in the Black Sea, leading to the first overall decline in global vegetable oil production in five years and the lowest stocks-to-use ratio in 10 years. 

Despite forecasts for total vegetable oil production to increase this year, the USDA still estimates overall global stocks to contract for 2022.

Any setbacks with vegetable oil production and supply will continue to support and elevate prices.

Vegetable oils are ubiquitous in packaged food formulations and are likely to represent an ongoing source of upward pressure to cost of goods sold.

Biofuel Growth Will Continue Apace

The “food vs. fuel debate” for vegetable oils will intensify in 2022 as both production and demand for biofuels increases, especially in the US.

Global industrial use for the four major vegetable oils — palm, soybean, rapeseed, and sunflower oils — is expected to increase by 2.4% in 2022, mainly to produce biofuels, according to USDA projections.  

In the US, plans for renewable diesel production would more than double capacity this year to 2 billion gallons (6.8 million  tonnes), with most of the feedstock from soybean oil. 

If all of the planned US capacity build-out does come online, this would require more than 3 million tonnes of additional feedstock, which would significantly impact and tighten the soy complex balance sheet in the US.

Demand for biofuels in Europe also will grow, although regulations aim to reduce dependence on palm oil in favor of other feedstocks, including rapeseed oil and used cooking oils (UCOs). 

China Import Growth Will Slow 

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 impact of African swine fever (ASF) in 2018, China has less need to import pork, but will continue to need large quantities of feed grains as its hog herd matures and the hog industry becomes more industrialized. 

Gro predicts a sharp decrease in China pork imports to pre-ASF levels of 1-2 million tonnes in 2022, down from 4.5 million tonnes estimated by the USDA for 2021. 

The expected big drop in pork imports is due to China’s hog population recovery and a decline in pork demand, as shown by Gro’s China Pork Demand Forecast Model. 

China’s feed grain demand will remain high, although the growth in feed grain imports will slow as the hog population stabilizes. However, domestic grain prices are likely to remain high, and susceptible to spikes, after years of drawing down corn and wheat reserves. 

Wheat prices especially have soared to new highs on record use of wheat in animal feed in 2021. That could push China to increase food-grade wheat imports this year. 

In addition, Henan, Shandong, and Hebei provinces  — accounting for 50% of wheat production — had the highest accumulated rain in 20 years since mid-2021, as shown by Gro’s Climate Risk Navigator for Agriculture. The torrential rains caused wheat quality issues, including mycotoxin contamination, as Gro predicted in July.

Relief Is in Store for Protein Prices 

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%.

US ranchers front-loaded their autumn sales to feedlots as drought conditions devastated pasture in the West and northern Plains. That will lead to more beef once the cattle reach market weight. 

Grocers and restaurants will benefit from lower beef prices. After that, however, beef prices could then rebound as feedlot populations drop. 

For US chicken producers, profit margins are well above historical levels, according to Gro’s newly launched Broiler Chicken Margin Monitor. Those hefty margins today are likely to push up broiler supplies and pressure prices for almost the next two years, a Gro analysis shows. 

Steep Coffee and Sugar Prices Will Persist

Soft commodities have seen some of the largest price increases this past year. Coffee is one of the biggest gainers, up 63%. 

Brazil’s next coffee harvest is expected to come in sharply lower after intense drought early this season, followed by unexpected frosts in June and July, killed many young trees and left mature trees struggling to recover. The weak crop outlook has kept global coffee prices hovering around 10-year highs.

Some Brazilian producers are bracing for production of Arabica beans to decline by as much as 20% to 30% in 2022/23 from 49 million bags produced two years earlier, the previous “on year” of Brazil’s biennial coffee cycle. 

A cup of joe may get more expensive as grocers and coffee-heavy restaurant concepts pass on higher coffee prices.

Brazil’s largest sugar producing region, South-Central Brazil, is suffering from a second year of record setting drought. Last year’s sugarcane crop was down 13%, sending sugar prices to multi-year highs. 

Now, drought is threatening to cause another short crop that could prolong high sugar prices. 

Track the Gro Drought Index and other indicators in the Gro Climate Risk Navigator to get a sugarcane-weighted view of crucial climate variables.