Vegetable and Pulses Outlook

Vegetable and Pulses Outlook

Per Capita Availability Slips

In 2021, total U.S. per capita vegetable availability (a consumption proxy) declined 3 percent to 384 pounds. All major categories realized reductions in per capita availability. Availability of pulse crops dropped 24 percent as pinto and navy bean output slipped. Potato availability declined for both table stock and processing products by 3 percent. Fresh-market availability slipped by less than 1 percent while processing vegetable availability declined by 3 percent in 2021.

Domestic Output Declines in 2021

Since peaking in 2017, aggregate volume of fresh-market vegetable supply has declined annually. Despite a 6 percent increase in import volume, preliminary data indicate that total national supply of fresh-market vegetables declined 1 percent in 2021. Domestic production (largely field-grown), which accounts for nearly two-thirds of fresh-market supply, declined 4 percent in 2021. The extreme heat negatively affected crop yields for potatoes, tomatoes, and pulse crops, whereas shortages of irrigation water (particularly in California) caused growers to reduce acreage for crops such as processing tomatoes.

Despite lower available supplies of fresh-market vegetables, the 2021 index of prices received by vegetable growers fell 6 percent to 118.1 from the previous year. Prices averaged lower for 11 of the 12 vegetables in the index. This was the largest year-to-year decline since 2012 and likely reflected pandemic-era uncertainty as the various fresh vegetable subsectors searched for equilibrium during the rocky recovery.

On the retail side, the Consumer Price Index for fresh-market vegetables averaged 4.4 percent above a year earlier during the first (winter) quarter of 2022. This was well below the 9 percent increase in the 2022 first quarter overall food-at-home price index experienced in comparison to the previous first quarter. In general, higher consumer prices reflect increased trucking (diesel fuel prices) and handling (wage rates) costs as well as rising farm prices for key crops such as potatoes, onions, lettuce, and broccoli.

The supply chain issues affecting parts of agriculture and the rest of the economy have not been as severe for fresh vegetables. Since vegetable imports and exports are heavily centered within North American markets, most fresh vegetables move overland via refrigerated trucks. Rising fuel prices, wage rates, pandemic mitigation costs, strong consumer demand, low retail inventories, and driver and truck shortages contributed to rising truck rates over the past 2 years. Recently, despite high fuel costs (which account for about 30 percent of truck carrier costs), truck rates have declined from the highs of 2021 as supply chain volatility and port congestion have begun to show improvement.

Input Prices

Fertilizer and Energy Lead Input Price Surge

Prices for fertilizer, energy, and other energy-based inputs are up sharply in early 2022 due to a combination of post-pandemic demand surge, continued sluggishness in supply chains, transportation delays, import duties on fertilizer, low crude oil inventories, and the Russia-Ukraine conflict. With a lull in COVID-19 spread and active cases in the United States, strong consumer demand for both durable and nondurable goods in the face of continued struggles in the supply chain had already resulted in widespread price pressure across the global economy prior to the Russia-Ukraine conflict. Energy and energy-based manufactured inputs account for about one-fourth of the production expenses of specialized vegetable farms. With energy costs up substantially, the vegetable production sector paid at least 16 percent more for the inputs required to produce, pack, and ship vegetables in the first quarter of 2022 (table 2).

Although there is considerable uncertainty regarding global fossil fuel supply and pricing trends in 2022, weighted average prices for energy-based inputs used in vegetable production have already risen substantially in 2022. Some input-specific detail follows:

According to the U.S. Energy Information Administration (EIA) short-term forecast in early March, strengthened consumer activity coupled with low oil inventories (global oil inventories have trended lower since mid-2020) was steadily pushing global oil markets higher into early 2022. The Russia-Ukraine conflict has added considerable uncertainty to the global energy outlook with international economic sanctions on Russia raising prospects for potential oil market disruptions.

Uncertainty now reigns in the global oil market outlook. Even with an assumed reduction in Russian supplies, EIA’s basic outlook suggests building crude inventories later this year leading to the possibility of lower average crude oil prices in 2023. Much depends on how much Russian oil enters the global market, how major oil producers respond to high oil prices, and how the global economy responds to the elevated energy market.

According to EIA, retail diesel prices averaged $4.03 per gallon in February—the highest average nominal dollar price since March 2013 and continued rising into early April. Given the current situation, West Texas Intermediate (WTI) crude oil is forecast to average above $100/barrel in 2022—up from $68.21 in 2021 and $39.17 in 2020. Since diesel (and gasoline) prices are correlated with the price of crude oil, growers and truckers can expect 2022 retail diesel prices to continue well above the $3.29 per gallon average of 2021.

According to The Food and Agriculture Organization of the United Nations (FAOStat), the United States applies about 11 percent of global fertilizer nutrients. The U.S. produces most of its nitrogen and phosphate requirements but relies on imports for most of its potash.

The U.S. accounts for about one-fifth of all global potash import volume with most sourced from Canada—the global leader with one-third of export volume. However, Russia and Belarus accounted for 37 percent of global potash exports in 2019 and sanctions on their movement could impact the potash market going forward.

Driven by strong post-pandemic demand, higher natural gas prices, and supply-chain bottlenecks, nitrogen fertilizer prices in 2022 are expected to reach or exceed twice the average of the previous five years (2017–21). The USDA, NASS phosphate and potash price index is expected to be up about two-thirds from the 2017–21 average on strong demand and rising transport and mining costs.

Agricultural chemical prices are expected to rise in 2022 (led by fungicides) as high crop prices lead to higher chemical demand. Together with supply issues due to low product inventories, high transport costs and tight labor markets will result in the largest price increases (10 percent or more) in almost a decade. Agricultural chemical prices trended downward from 2014 to 2021 (falling about 10 percent) as the industry shed burdensome stocks during a sustained period of pre-COVID-19 market doldrums.

Demand for building supplies remains strong across the economy, which contributed to a 16 percent price hike in 2021 and is well on its way to another double-digit gain in 2022. The March Producer Price Index (PPI) for steel mill products declined for the third consecutive month but was still 43 percent above a year earlier while concrete products such as blocks and bricks rose 10 percent. Softwood lumber was up 23 percent from a year ago but is now 90 percent above the previous 5-year average.

In the past, price increases for custom services have usually mirrored the general inflation rate but this year the cost of custom services may exceed that rate reflecting increased demand for these services due to increased crop acreage, rising labor costs, and price surges in machinery items, including spare parts.

Labor availability and expense has been a critical issue for most commercial vegetable growers for decades. Wage rates rose nearly 6 percent in 2021 and are projected to rise again in 2022 as skilled farm labor remains at a premium and alternative opportunities outside of agriculture abound.

Reflecting similar cost and supply-chain issues faced by automobile manufacturers, farm machinery prices are expected to rise 10 percent or more this year after rising 7 percent in 2021.