COVID will be a driver for acceleration in automation

The latest CoBank report foresees a major change in the US supply chain from field to grocery and restaurants.

Posted on Jul 09 ,10:43

COVID will be a driver for acceleration in automation

Economists from CoBank are predicting major changes in the US food industry. According to them, challenges brought on by COVID-19 will hasten automation throughout supply chains. The widely anticipated summer economic boom is well underway and U.S. consumers are spending on services again. Jobs are abundantly available, but workers are scarce as the labor market is healing more slowly than most economists expected. According to a new Quarterly report from CoBank's Knowledge Exchange, labor challenges felt during the pandemic and continuing today will incentivize businesses throughout the food supply chain to rapidly increase automation within their operations.

"The most significant and lasting impact from COVID will be an acceleration in automation," said Dan Kowalski, vice president of CoBank's Knowledge Exchange division. "And it will affect the entire supply chain from field to grocery and restaurants. It won't be an overnight transformation, but much larger investments in technology now will lead to a much more automated supply chain over the next few years."

Elevated prices for food

In this market, higher prices in the short and medium-term are a certain thing, as increases in raw material and transportation costs, combined with higher wages, are causing retailers to push those higher costs on to consumers. US consumers have benefited from very low food inflation for much of the past decade, but higher prices are a near certainty for the next year.

Grocers and restaurants are anxious to learn what and how consumers will want to eat in the new equilibrium. The coming adjustments will look quite different for each segment of the food supply chain. But the acceleration in change will be meaningful, and strategic steps to build more resilient businesses are coming sooner than previously believed.

Retail grocery sales are growing

Meat and poultry prices hit record highs in mid-May as foodservice and retail grocery pipelines were primed for post-COVID consumer activity and summer celebrations. Foodservice sales reached pre-COVID levels in April, hitting an all-time monthly high of $75.3 billion. More illuminating, however, is that overall retail grocery sales growth is up 7.3% from a year ago and 15.3% from 2019, providing evidence of longer-term changes in consumer behavior.

Chicken industry margins have markedly improved from the worst of 2020 and profitability should remain strong through the end of 2021. However, the well-publicized issues with chicken breeding stock changes in the past couple of years have limited short-term expansion potential.

Pork has been one of the highest rising commodities in 2021, with lean hog futures topping out at $122 in mid-June. Strong consumer demand for meat, tight supplies of competing meats and declining pork production in the second half of the year are all tailwinds for pork prices for the remainder of 2021. However, Chinese pork prices have dropped 65% since the beginning of the year, signaling a significant reduction of US pork exports to China in the second half of the year.

Despite beef prices being at or near record highs, cattle ranchers and feeders are currently facing limited national slaughter capacity, high feed costs and the liquidation pressures of exceptional drought hitting the western US. With packer margins reportedly hitting $1,000/head earlier in the year, it is not surprising that producer organizations have pressured Congress to intervene. The national beef herd is already in contraction due to weak cow-calf profitability going back as far as 2015.

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