2022 Insights & Perspectives by Farm Credit East

PERSPECTIVES

INSIGHTS &

2022 NORTHEAST AGRICULTURE

ECONOMIC ANALYSIS & PAPERS ON AGRICULTURE, COMMERCIAL FISHING & THE FOREST PRODUCTS INDUSTRY

There are many things to consider when running a farm, forest products or fishing business, and navigating the COVID-19 pandemic these last few years has brought on a number of additional obstacles. While many producers had to overcome a variety of challenges such as disrupted markets and keeping their families and workers safe, Northeast producers have shown remarkable resilience and kept producing the food and fiber products we all rely on. As we look forward to the year ahead, it looks like 2022 will be filled with its share of new challenges and opportunities. Among the challenges is the rising cost and limited availability of many inputs including labor, however the price outlook is good for many commodities and other products. Throughout the pandemic, agricultural, fishing and forestry businesses showed how essential they are, and have gained a new appreciation from consumers, as well as new market opportunities. Farm Credit East is committed to helping our customers thrive in this complex business landscape by providing the capital they need. In addition to a stable source of financing, this uncertain business environment requires expertise and other financial services Farm Credit East provides to help businesses stay strong and on track. That’s why as part of being our members’ trusted financial partner, we also aim to provide knowledge and insights through our Knowledge Exchange program which provides a variety of content through our Knowledge Exchange Partner e-newsletter, webinars and publications like this one. In this publication, we’ve tapped thought leaders in various industries to give you their outlook for the coming year. We hope that you find these Insights & Perspectives informative as you make plans for the year ahead. As I mentioned above, there’s a lot to consider in running a farm, forest products or fishing business. The good news is you don’t have to do it alone. Farm Credit East’s team of experts is committed to helping your business be the best it can be.

Mike Reynolds Chief Executive Officer Farm Credit East

INSIGHTS & PERSPECTIVES

CONTENTS 3 The Northeast Farm Economy Chris Laughton, Farm Credit East

12 2022 Dairy Outlook Christopher Wolf, PhD, Cornell University 14 2022 Grain & Oilseed Outlook Zach Harding, The Andersons, Inc. 18 The Lobster Industry in 2022 Melissa Waterman, Maine Lobstermen’s Association 22 The Northeast Forest Products Industry Review and 2022 Outlook Eric Kingsley, Innovative Natural Resource Solutions LLC 24 2022 Outlook for the Green Industry Dr. Charlie Hall, Texas A&M University 28 2022 Northeast Vegetable Crops Outlook Bradley Rickard, Cornell University

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THE

NORTHEAST FARM ECONOMY 2021 C HR I S L AUG HTO N D IR E C TO R O F K NOW L E D G E EXCH A N G E FAR M C RE D I T EAST

marked a year of strong economic growth for the U.S. economy, which is still recovering in many ways from the COVID-19 induced recession of 2020. Following a contraction of -3.4% in 2020, real (inflation-adjusted) GDP growth came in at annualized rates of 6.3% for Q1 2021, 6.7% for Q2, 2.3% for Q3, and 6.9% for Q4, bringing growth for the year to 5.7%. Forecasts are for real GDP growth to slow to a more normal pace in the coming two years; 2.9-3.5% in 2022, and 2.5-3.0% in 2023.1 There are a few major issues facing the national economy as we go into 2022. First, there is the issue of inflation and supply shortages. The situation we find ourselves in today has a lot to do with the COVID-19 pandemic and the related economic recession. The economy sharply contracted in the second quarter of 2020, disrupting supply chains across nearly all industries. As the economy has rebounded, firms have struggled to restore capacity fast enough to handle the surge in demand. This, coupled with aggressive stimulus actions by the U.S. federal government, led to a situation of demand outpacing capacity, and subsequently rising inflation. The U.S. consumer price index (CPI) increased by 6.8% in November for the preceding 12 months. A major driver of inflation has been energy costs, which have increased by 33.3%, from the depressed levels of one year ago. Increases in other product and service categories vary widely, although nearly all have increased to some extent.2 1 2

NORTHEAST AGRICULTURE

Range of forecasts from: The Conference Board, Deloitte, and Goldman Sachs. As of January 6, 2022. U.S. Bureau of Labor Statistics

2022 INSIGHTS AND PERSPECTIVES

Businesses relying on imported inputs or goods for resale have faced not only product inflation, but surging transport costs and logistical bottlenecks. Major container ports have struggled to keep up, facing both capacity constraints as well as surging cargo volumes. The Port of Los Angeles, America’s highest-volume port, handled 5.5 million TEUs in 2021, a new record, even as nearly 100 ships sit anchored, waiting to unload.3 This has led to both cost inflation as well as supply shortages, even for U.S. manufactured goods, as many rely on imported components. Analysts expect that backlogs and elevated shipping costs will persist at least through the first half of 2022, before improving.

2020, following a rash of COVID-19 related layoffs, and since then, businesses have struggled to get those workers back.

Economists project that business supply chains will increase capacity over the next 6-12 months, resolving most supply shortages and reducing inflationary pressure. Nonetheless, these improvements will take time, and it is likely there will be at least one more quarter of elevated inflation before the rate of price increases settles down.

struggled to staff entry-level and service positions.4 It is likely that upward pressure on wages and limited supply of job seekers will continue for the foreseeable future.

Another driver of price increases and capacity constraints across the U.S. economy has been the supply and cost of labor. The U.S. Bureau of Labor Statistics reports the number of employed Americans peaking at 158.7 million in December of 2019. That figure fell to 133.4 million in April 3 4

As of November 2021, U.S. employment totaled 155.2 million, meaning we are still missing 3.5 million workers from pre-COVID levels. While some workers are likely to return to the workforce in the coming year, there are others who may simply not return, leaving businesses struggling to find and retain sufficient numbers of employees. With supply limited, labor costs have increased. The Employment Cost Index for private industry workers increased by 4.1% as of Q3 2021, for the preceding 12 months, the largest increase since 2004. Lower-wage occupations saw greater increases than the average of all workers, as companies have particularly

A key factor affecting the economy will be the Federal Reserve’s response to these circumstances. The Federal Reserve’s stated goals are to promote maximum employment and price stability, which translates into a long-term inflation target of 2% per year. With unemployment at 4.2%, as of November 2021, and inflation well above the Fed’s target, it is likely they will take steps to cool inflationary pressure by tapering bond-buying and increasing the Federal Funds

Bloomberg, December 16, 2021. TEU= Twenty-foot equivalent units U.S. Bureau of Labor Statistics

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Rate, currently near zero. At its December meeting, economic projections indicated three quarter-point rate increases are expected in 2022, with more to possibly follow in 2023. The speed at which these increases may be implemented will depend on both inflation and unemployment indicators, but it appears likely we will see a prime interest rate around 4.00% by the end of the year.

INTERNATIONAL TRADE Despite the widely reported bottlenecks at container ports in the U.S. and around the world, global container shipping volume increased by 5.5% in 2021. For the U.S., imports of goods rose 21.6% in 2021 by value compared to the prior year, while exports increased 23.3% by value.5 The USDA Foreign Agricultural Service reports agricultural exports increased 19.9% by value for the year through November, due to increases in both unit prices and volume. The USDA Economic Research Service forecasts record volumes of both agricultural exports and imports for FY2021. Leading export categories include grains and feed at $42.7B (2020: $29.9B), oilseeds and related products at $37.9B (2020: $27.5B), livestock, dairy and poultry at $37.0B (2020: $31.6B) and horticultural products at $37.6B (2020: $34.8B).6 Looking ahead at 2022, exports of grains and feeds are forecast to decline by 2.9%, oilseeds and related products to increase 2.6%, livestock, dairy and poultry to increase 4.6%, and horticultural products to increase 0.3%. Exports to China are forecast at $36.0B, a record if realized (+4.1%). Exports to Canada are forecast at $24.0B (-0.5%), and exports to Mexico are forecast at $23.5B (-1.6%). U.S. seafood exports increased by 19.7% in 2021, year-over-year (by value). Forest product exports were 28.1% higher for the 2021 year through November (by value), with both volume and value showing increases.

NORTHEAST FARM ECONOMY The two topics dominating any conversation with farmers today are labor and inflation. Business has generally been positive on the revenue side for most Northeast producers, with consumer markets doing well, and many commodity prices rising, but there are significant concerns related to inputs, both in terms of cost and supply shortages. As discussed in the National Economy section, inflation has risen as economic activity increases domestically and around the globe. The costs of inputs, equipment, labor and construction have soared this year, and availability is tight for many products and services, with shortages common. We are seeing supply chains gradually normalize and anticipate that shortage issues will decline in severity over the course of 2022, but for now, significant bottlenecks remain. Labor costs, as well as the complexity of managing employee schedules, have been impacted by recent legislation that has established a 60-hour overtime threshold in New York. Recently, the Farm Wage Board established by the law has recommended the overtime threshold be reduced to 40 hours over the next 10 years. A court decision also narrowed the ag overtime exemption in Massachusetts. Additionally, minimum wage, the H-2A AEWR wage, and general market wages have increased significantly in many Northeast states.

NET FARM INCOME PROJECTION

Net Farm Income, $1,000s

Net Farm Income Estimate, Farm Credit East States 1,600,000 1,400,000 1,200,000

Other

1,000,000

Cash Field

800,000

Fruit

600,000

Vegetable / Ag Retail

400,000

Greenhouse / Nursery

200,000

Dairy

– 2016

2017

2018

2019

2020

2021

Source: USDA ERS & Farm Credit East Estimates. Does not include forest products or commercial fishing.

5 6 7

U.S. Census Bureau, January-November data. USDA ERS: Outlook for U.S. Agricultural Trade: November 2021. USDA WASDE, December 2021.

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8 9 10

Agri-Mark Price Forecast Upstate Niagara Price Forecast USDA NASS Milk Production Report

2022 INSIGHTS AND PERSPECTIVES

DAIRY • The USDA national all-milk price estimate for 2021 is $18.60/cwt., and $20.75 for 2022.7 Avg. Price per Cwt. Boston Blend Price8 Avg. WNY Blend9 F=forecast

2019

2020

2021

2022 F

18.12

17.10

17.85

21.64

17.10

16.07

16.86

20.69

• U.S. Milk production grew modestly in the first three quarters of 2021, increasing by 1.9%, year-over-year, due to productivity increases, rather than greater cow numbers. • According to USDA, the national dairy herd decreased by 103,000 head from June to October 2021. • On a state-by-state basis, in November, there were gains in production in some major producing states, including California (+1.0%), Idaho (0.4%), Minnesota (1.9%), Texas (2.8%), and Wisconsin (2.2%), and declines in others, including Michigan (-0.8%), New York (-0.2%), Pennsylvania (-3.5%), and Vermont (-1.4%).10

• Despite ongoing shipping bottlenecks, U.S. dairy export value increased by 17.3% in October, year-overyear, due to higher prices. • USDA ERS estimates 2021 export totals on a solids basis will be 4.3 billion pounds more than 2020.11 • While milk prices continue at reasonably strong levels by historical standards, increased feed and other input costs have squeezed margins for dairy producers. Dairy Margin Coverage (DMC) income-over-feed-cost margins averaged $9.76/cwt in 2020, $7.06/cwt in 2021, and are expected to increase to $9.87/cwt in 2022. Most dairy herds in the Northeast will track differently on feed costs than the DMC margin calculation, so we do not expect their margins to be $2.70 lower. A more modest NCOP increase is indicated by Farm Credit East’s Dairy Profit Analyzer data. • Many Northeast producers experienced leaner profit margins in 2021, as a result of increased labor and feed costs, reduced government payments, and general cost inflation.

TIMBER AND FOREST PRODUCTS Lumber: • Despite a tightening federal reserve stance and increases in COVID-19 cases, demand for new home construction remained strong in the fourth quarter of 2021. A combination of an underbuilt housing stock since the ’08 financial crisis, historically attractive long-term mortgage rates, good wage growth and strong household balance sheets continues to support housing starts of more than 1.55 million units per year into 2022 which should provide above average profitability for most market participants in the Northeast. 11

• Volatility in Eastern Spruce/Fir pricing continues. With continued strong demand for Eastern Spruce/ Fir lumber and very low inventories, Eastern Spruce/ Fir 2x4 prices climbed to over $1,200/MBF by year end 2021. The most recent price increases can be attributed to stronger than anticipated demand as warm weather across the country extended the building season while dealers were already short on inventory. For perspective, Eastern Spruce/Fir 2x4 prices bottomed at $450/MBF in August 2021. • Strong demand, low inventory, and limited surge capacity on the supply side continues to drive Eastern White Pine pricing upward. Normally Eastern White Pine pricing is very stable with minimal price variability, but this hasn’t been the case recently. • Hardwood lumber prices continued higher in the second half of 2021. All major northeastern species (Red Oak, Hard Maple and Yellow Birch) prices continued to trend higher throughout 2021. Demand increases are attributable to improved export markets (i.e. Asia), repair and remodeling expenditure growth, and elevated commercial and industrial construction activity. Furthermore, prices were buoyed by production constraints due to reduced hardwood log supply during 2020 and into 2021. Pulp and Paper: • There is little change in overall end use paper markets, with free sheet, super calendar and newsprint remaining under pressure and declining, while container board and packaging have been returning positive margins. • There were a couple of headwinds in the first half of 2021 for the tissue industry: 1) they had to deal with industry wide “burn off” of retailer inventory overstocking which led to a reduction

USDA ERS Livestock, Dairy, and Poultry Outlook, December 2021

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in new orders and 2) pulp prices hit record highs as most commodities costs experienced substantial increases in 2021. During the second half of 2021, tissue manufacturers experienced strong profitability which is projected to continue into 2022 as retailer tissue inventory has been depleted and pulp prices have started to decline.

• Corn usage for ethanol has recovered from its 2020 COVID-19 induced slump, with usage for 2021/22 forecast at 5.25 billion bushels, 8.1% greater than the 2019/20 marketing year.13 • Both export and domestic demand remains robust. Corn exports for the 2021/22 marketing year are projected at 2.50 billion bushels, slightly lower than last year. China has been a much more significant buyer of U.S. corn than in previous years and continues to be the leading destination for U.S. soybean exports.

Logging: • Despite good demand for Spruce/Pine/Fir (SPF), White Pine and some Northern Hardwood logs, 2021 was challenging for many logging contractors due to the loss of an important low-grade market in Jay, Maine (Pixelle plant), reduced capacity of a few other lowgrade markets and the Nine Dragons mill in Old Town, Maine not meeting its production targets.

• Some disease issues were experienced in Western New York due to high moisture conditions. Pricing is strong, and yields were very good overall, aside from some loss to disease in certain areas. • There is a great deal of concern about input costs, particularly fertilizer for 2022. This may prompt a shift to soybeans which need less fertilizer.

Timberland: • The sale of recreational timberland remains strong throughout the Northeast. Improved consumer liquidity and savings, steady credit access, and the current low interest rate environment continues to provide tailwinds for landowners to execute sales on smaller properties. Elevated land sales have bolstered profitability and liquidity for timberland owners throughout the Northeast.

LIVESTOCK • USDA average prices for choice steers came in at $122.56/cwt. for 2021. 2022 average prices are forecast at $135.00/cwt. • Broilers show a similar story at $1.004/lb. in 2021, and $1.020 for 2022. Eggs are forecast at $1.17/doz for 2022, about the same as 2021’s average price.14

CASH FIELD CROPS

• Prices for locally produced meats continue to significantly outpace national commodity prices, and demand remains strong, although some report some market softening since last year.

• Prices for grains and oilseeds remain high, with March corn futures trading at $5.99/bu, and soybean futures at $13.99/bu.12 • USDA forecasts corn prices for the 2021/22 market year, at $5.45 (2020/21: $4.53). Soybean prices are forecast at $12.10 for 21/22 (2020/21: $10.80).

• Many local meat producers cater to high-end restaurants, which are seeing traffic gradually increase, but have been slow and conservative with ordering. 12 13 14

NORTHEAST AGRICULTURE

2022 INSIGHTS AND PERSPECTIVES

CBOT Futures closing prices as of January 12, 2022 USDA WASDE, December 2021 USDA WASDE, December 2021

• Slaughter facilities in the region continue to struggle to meet demand. Producers without standing appointments may need to wait a month or more for bookings. • Equine boarding and lesson facilities took a big hit in 2020 but are largely back to full capacity again. Hay and bedding expenses have increased considerably. • The New York standardbred and thoroughbred industries have been trending well since emerging from the shutdowns of 2020. The handle at the racetracks, which had to operate in 2020 without on-site patrons increased by double digits leading to record high race purses. Racetracks in New York have been open throughout 2021 to in-person spectators, and attendance has been strong.

FRUIT Apples: • The 2021 growing season started with many challenges. The season started early and dry. Pollination was questionable for some varieties with cool weather experienced across the region. Coming out of bloom, the fruit set looked reasonable but warm dry weather combined with chemical thinners made for a large fruit drop. • Some processing growers had blocks of apples nearly bare, such as Ida Red and Rome, while other processing farms had huge crops. Pre-harvest initial price offerings from some buyers were very low for processing fruit, but buyers later increased their pay prices. Hard cider makers are now a factor in the market. Pricing, in the end, reached favorable levels for growers. Average yield reports were in the 65-75% range of a normal processing crop. • Modernized fresh apple growers, with post/ wire trellis, close tree plantings, excellent trimming techniques, and trickle irrigation had excellent crops, with great finish and flavor. In-demand varieties include Honeycrisp, Premier Honeycrisp, Evercrisp, Snapdragon (a Cornell club variety), Fuji, Ambrosia, and Wild Twist. Returns have been and are projected to stay strong. Club varieties have performed well in the fresh market. New varieties may offer premium pricing, but challenge orchards with a learning curve to manage their growing requirements. Crop size is generally equivalent to the past couple years. • Legacy-style orchards with large trees and older varieties may struggle with profitability in wholesale 15

markets. Many have pivoted to retail sales and PYO to maintain viability. • Apples have generally been moving well from storage. U.S. fresh-market holdings (as of December 1, 2021) of 100.3 million bushels are 2.4% less than the than the inventories reported in December 2020, and 11.2% below the 5-year average.15 • In contrast, U.S. processing apple holdings (at 59.0 million bushels) were 40.6% greater than the December 5-year average. • Total New York apple holdings of 10.9 million bushels as of December are lower than December 2020, but 2.1% greater than the 5-year average. • U.S. apple exports are running very close to last year, and the 5-year average. Peaches: • The New Jersey peach sector continues to struggle. 2021 was a good growing year, with a decent harvest, but poor markets and pricing persist. Wine/Craft Beverage: • Wineries in the Finger Lakes region of New York report continued strong sales despite what appears to be a permanent change in the way tastings are conducted. Many wineries no longer offer “stand-up” tastings. In addition to strong year-over-year sales, the post-pandemic boom of tourism seems to be helping as well. Not all wineries have been able to adapt successfully to these changes, and a minority of wineries are likely to have worse results for 2021. However, most wineries have been able to adapt and have seen very good visitor counts. • On the grape side, the 2021 wine and juice grape crop in New York yielded much higher than average. Since wine sales in the region were relatively strong, grape prices held despite the surge of supply. Other beverage businesses report similar positive retail sales. • In other regions, wineries and other craft beverage businesses generally reported solid financial results for 2021, with some variability. Cranberries: • The 2021 crop was short across North America based on preliminary reports. Wisconsin is reporting 20% fewer cranberries than average due to an early spring dormancy break followed by late hard frosts. Summer storms also contributed to a smaller crop in some areas. This poor weather pattern affected Quebec

USApple Market News

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which is also projected to be lower than average. Massachusetts is reporting a 15-20% smaller crop in 2021 as the perennial vines were not in an optimal state of health due to the 2020 drought. 2021 was one of the wettest years on record for Mass. growers causing high fruit rot throughout the region. All this could end up being favorable for the cranberry market, which has suffered from oversupply. It remains to be seen whether pricing will make up for the smaller crop volume.

VEGETABLES/POTATOES Fresh market: • Prices in New England were generally favorable for growers for most of the 2021 season. Growers reported reduced yields due to an exceptionally wet summer, but ultimately most had less of a yield impact than was feared earlier in the season. • Long Island saw good growing conditions and weekend sales weather. • Retail farm stands saw robust traffic but struggled

NORTHEAST AGRICULTURE

2022 INSIGHTS AND PERSPECTIVES

at times with having sufficient inventory and staff to handle consumer demand. • Consumer demand for CSA shares seems to have dropped off for some following 2020’s surge. Processing vegetables: • Several processing plants are currently for sale, leading to uncertainty as to the stability of the market going forward. Pricing has generally been lower, particularly for cabbage. There is a great deal of concern about labor costs. With labor costs rising, market uncertainty, and high cash field crop prices, some growers will be switching to row crops in 2022. Potatoes: • The 2021 Maine potato crop is estimated at 18.42MM cwt, an increase of nearly 5MM cwt from the 2020 crop, which was negatively impacted by one of the worst droughts on record. Based on harvested acreage of 53,400, this puts the Maine average yield at a record 345 cwt per acre, which is 80 cwt per acre above the 2020 average yield.

• Maine experienced nearly ideal growing conditions through much of 2021, but an August dry spell likely reduced what would have been even stronger yields. 2021 crop quality is overall very good, with excellent size and marketability of the crop. Some minor storage issues have surfaced since harvest concluded, which is attributable to a heavy rain event that occurred in early October. To date, any losses have been minimal, with mostly increased shrink to grade out the rot in the lots that have been affected. • Due to the significant increase in overall yields and a 2,600 acre increase in the 2021 planted acreage, many growers found themselves short of storage capacity. Most were able to either market the extra potatoes during the harvest season or find temporary storage that enabled them to get the crop under cover before the harvest window closed. This included several growers that utilized buildings on the former Loring Air Force base in Limestone, including the gigantic Arch Airplane Hangar, which attracted local media attention.

potatoes, which has had a positive price effect for U.S. growers.

AQUATIC / FISHING Lobster: • There are mixed results through the Northeast lobstering fleet. Prices were at record highs even throughout the shedder season when they typically decline, and demand remained strong despite the high prices. The catch was above average for most coastal fishing areas in Maine with healthy lobster stock. • Overall, 2021 was a very strong year with significant renewed interest in boat upgrades/building.

Potato Markets: • Conditions in all market segments appear to be favorable at the present time, with demand for potatoes on a national scale being strong across nearly all market segments. Demand for processing potatoes, which make up a significant portion of the Maine supply, is very strong due mainly to smaller crops in the western producing areas of Idaho, Washington and Oregon. Overall 2021 production across the U.S. was down approximately 7MM cwt or 1.6% from the previous year. The shortage of French fry quality potatoes in Western states has caused Lamb Weston to begin shipping fry quality potatoes from Maine to Washington. To date, 11 rail cars have been sent, which is the equivalent of 44 truckloads. The expectation is that this could continue throughout the season with several hundred car loads possible moving from Maine to Washington. • Both seed and tablestock markets are also good, with prices similar to last year and quality being very good. Chipstock movement has been steady, although a large Maine crop could prove a challenge to fully move, as chipstock demand has not been as strong as french fry demand and chipstock supplies nationally being more abundant. Contract volumes in Maine were higher than the previous year and some extra buying has occurred. Cross-border trade restrictions due to the discovery of Potato Wart Fungus in Canada have reduced imports of seed and tablestock

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• Despite the solid earnings in 2021, there is a high level of concern about the unknowns surrounding whale protection and wind farm development. • The lobster industry, particularly in Maine, is facing great uncertainty regarding measures being taken to protect the endangered Northern Right Whale from extinction. Possible measures include closures of major lobstering areas, and requirements for significant changes to existing traps and lines. Scallops: • Scallop pricing remains high, resulting in pushback at the retail level, as some consumers substitute scallops with less expensive seafood and other proteins. • Scallop prices are at 52-week highs for all sizes. Open Days-At-Sea are the same as the last fishing FY but there was a reduction in lbs. for the closed areas. Prices have climbed due to high restaurant demand after COVID restrictions were lifted. Groundfish: • Pricing for most species remains at 52-week highs at the wholesale level as we enter 2022. Landings were generally down slightly across the board last year, but the price decline was made up for by higher prices. Aquaculture: • Northeast aquaculture producers worked hard to piece together sales in 2021, some through established channels such as selling to fish markets, and others via innovative, new methods, such as online sales and local home deliveries. As restrictions lifted, aquaculture producers saw a very strong demand for their products back in restaurants. Combined with the new methods tried earlier in 2021, in some cases this meant that demand was outstripping supply — which abated concerns of oversupply from the pandemic and restaurant sales being down in 2020 and early 2021. • Seaweed production increased greatly, as it has since at least 2015, now reaching almost 1 million wet lbs. Salmon, often sold via grocery stores and fish markets, also sold well with the increase in seafood purchased for at-home consumption.

is positive, as more people start eating seafood, and those who currently consume seafood increase purchases.

GREENHOUSE, NURSERY AND SOD • 2021 was another good year for the green industry, albeit with a few concerns. Wholesale product movement and pricing have been strong, but supply, labor and cost challenges are significant. • Many growers hit record sales in 2021 and are optimistic for top line revenue increases again in 2022. The concern is not whether they will be able to raise prices, its whether they will be able to raise them enough to cover dramatically increased costs for labor and some inputs. Many growers report stronger revenue, but weaker margins. • Producers who rely on imported goods for supplies or resale inventory report significant shortages, delays, and cost increases due to port bottlenecks, general logistics congestion and production problems at overseas manufacturers. • Increases in freight costs and tight availability of long-haul trucks and drivers gives Northeast growers an advantage over West Coast competitors, although Northeast growers themselves are challenged with the availability of CDL drivers for regional deliveries. • Inventory remains tight for popular plant varieties, but many growers are hesitant to add additional longerrange production as there is some concern whether current demand levels will be sustained over the long run. This is particularly true for larger-sized nursery stock which has a longer production cycle. • An increase in spending on the home, brought on by the COVID-19 pandemic, continues, and consumer demand for lawn and garden products remains robust. • As with other agricultural sectors, the availability and cost of labor continues to be a challenge for all skill and experience levels.

• Looking ahead for 2022, there will likely be slowdowns in the early months of the new year, which is typically a slower time for aquaculture and seafood sales. After that, most aquaculture businesses have geared up for growth and anticipate an even higher demand than in 2021. For the coming year, the outlook

NORTHEAST AGRICULTURE

2022 INSIGHTS AND PERSPECTIVES

During the ongoing COVID-19 pandemic, U.S. dairy markets have increasingly felt the effects. Supply and demand issues not just domestically but internationally continue to trickle down to U.S. farm milk prices. Inflation is a major topic, and the general economic debate is focused on whether the high inflation we have recently experienced is driven by supply chain issues (i.e., labor shortages) or excess demand because consumers are spending less on services (i.e., too much money chasing too few goods). Of course, it is more than likely that both are contributing factors. This discussion is important because the policy prescriptions differ. Supply chain issues could begin to resolve when more people can get back to work as the

Consumption of dairy products when eating away from home differs when compared to at-home dining. This showed up in 2020 as fluid milk consumption halted its long-term decline. Unfortunately for the dairy industry, in 2021, as eating patterns returned to some semblance of normal, fluid milk consumption resumed its declining trend. Other impacts of the food-at-home consumption trend included more yogurt and cream cheese which benefited the Northeast dairy industry. Longer-term trends, including consumption of whole fat dairy products continued. This makes the ability to export any excess solids-not-fat in the form of milk powders key to balancing the domestic market.

2022

Dairy Outlook CHRISTOPHER WOLF, PHD CORNELL UNIVERSITY

pandemic subsides with schools and daycare consistently open. Higher interest rates from the U.S. Federal Reserve would be counterproductive to solving this set of issues. Excess demand, on the other hand, is more likely to influence policymakers to increase interest rates to rein in inflation. Excess demand for goods at the current time could be driven, for example, by decreased consumer spending on services resulting in more money available for goods. With respect to the U.S. dairy market, demand issues to watch include the retail price of dairy products domestically, U.S. household income, and international dairy product prices relative to those in the U.S.

U.S. milk production in the second half of 2021 grew at below-trend rates concluding in a decline in December compared to the prior year. Among the causes of this tepid milk production growth were drought effects in Western states, high feed prices and cooperative base programs. New York milk production in December 2021 declined by -1.7% year-over-year, while Vermont saw a decline of -1.4%. Labor costs increased on farms and labor availability continue to be a challenge for the entire dairy supply chain. Hauling costs were one of the largest sources of inflation and milk haulers experienced major transportation issues. Despite these domestic transportation issues and congestion at ports, U.S. dairy exports through the first

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three quarters of 2021 were at record pace. China was a major destination for U.S. dairy exports in 2021. China has been rebuilding their swine herd using, in part, dairy imports as feed. It is not a coincidence that when China increases imports from the U.S., it supports higher dairy product prices.

production has recently been affected by weather. Weather will also affect corn and soybean production in North and South America in the year to come. Finally, tensions with Russia and China have the potential to affect dairy markets depending on sanctions and other effects.

Globally, New Zealand and Australia have had contracting milk production while the EU has been essentially flat. The causes of production declines in Oceania include weather patterns — currently experiencing a La Nina in the Pacific — as well as increasing environmental regulation. Taken together, the lack of production growth in major dairy exporting countries has put a real tailwind

Even with the port challenges in 2021, large amounts of dairy products were exported. As ports work through their capacity issues, exports could improve in 2022. Domestically, the dairy industry will continue to struggle with finding employees, particularly milk truck drivers. This might provide friction for farm milk prices, but dairy product demand is very strong. Current dairy stocks for butter and cheese support a bullish outlook. Class III milk price is currently forecast to average above $21/cwt while Class IV milk price is forecast above $22/cwt. The result is that the farm milk price outlook for 2022 is as strong as we have seen since 2014. Actual farm profitability will depend heavily on feed and labor costs. If farms have plentiful feed production, they should see an above-average year.

behind dairy product prices going into 2022. Sources of uncertainty in 2022 on the demand side in addition to the pandemic and related income effects, include geopolitical concerns. While increased dairy exports provide an outlet for U.S. dairy products — particularly powders — the flip side is that the domestic industry is vulnerable to trade disputes. At the current time, tensions with Russia visà-vis Ukraine and China with Taiwan provide uncertainty to world markets that may affect milk prices.

While the Dairy Margin Coverage (DMC) Program is not forecast to make payments in 2022, it remains an important tool for risk management. The DMC program feed cost calculations were changed in 2021 to use supreme alfalfa prices to reflect the cost of dairy quality hay. Additionally, some producers were be allowed to increase their historic milk production (for the first time since the program came about in 2014), through a process termed “Supplemental DMC Enrollment.” Under this enrollment eligible dairy operations with less than five million pounds of established production could increase their base according to a formula which uses 2019 actual milk marketed. 75% of difference between 2019 actual marketings and previous production history subtracted will be added to the old production history to create a new production history up to five million pounds. Producers must pay additional premiums on the increased production history, but they will also receive retroactive payments on their 2021 coverage. This increase in production history will be applicable through the 2023 Farm Bill. Again, at the current time, the forecast is essentially for no DMC payments in 2022 given the current strength in the milk market (although feed is expensive), but things can certainly change over the course of 2022. Historically, the DMC program has been a net positive in almost every year.

On the supply side, major concerns include the pandemic, weather and geopolitics also. The pandemic is constricting labor markets and snarling supply chains. Weather is always an issue. As noted above, Oceania’s milk

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2022 INSIGHTS AND PERSPECTIVES

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2022

grain oilseed outlook

CHALLENGING YEAR PROVIDES OPPORTUNITIES

ZACH HA RD I N G THE A N D E RSO N S I N C .

Amid the ongoing COVID-19 pandemic, U.S. grains and oilseed markets rallied to multiyear highs this winter on the heels of an unexpected demand-driven shock, supply chain and logistical crises, and overall inflation fears. In early 2021, grain producers were able to plant nearly all expected acreage, racking up 93.4 million corn acres and 87.2 million soybean acres. A relatively favorable growing season across the country enabled a record yield for corn and nearly a record for soybeans. On the export demand side, China was the focus as we shipped tremendous volumes from the Gulf and West Coast. Corn exports increased 54% from 2020 to 2021, and soybean exports rose 35%. Stress on port facilities was a major concern, especially as some older assets were brought back to life to handle the additional workload. Overall, execution was stable and efficient, and grain has made it to destinations overseas. The foodversus-fuel debate has been reignited with the emergence of renewable diesel, an advanced biofuel that is cleaner and more economically viable than traditional biodiesel. Renewable diesel feedstock includes vegetable oils, fats and greases. Biofuel demand for corn — and now oilseeds — continues to be a price driver with gasoline consumption and driving miles returning closer to “normal,” after a dramatic reduction in 2020. Grain prices began 2021 with roughly $4.70 per bushel corn futures and $13.00 per bushel bean futures trading in the most active contract. During spring planting, the grain market rallied by more than $3.00/bu., hitting a corn high of $7.75/bu. in the nearby contract and soybeans touching $16.77/bu. One would have to look back to December 2012 for the last time those prices traded in Chicago. Harvest contracts (December corn, November soybeans) followed the nearby action.

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2022 INSIGHTS AND PERSPECTIVES

December 2021 Corn 650

Cents per Bushel

600 550 500

SOUTH AMERICAN PROSPECTS

450 400

6/ 4/ 20 19 8/ 4/ 20 19 10 /4 /2 01 9 12 /4 /2 01 9 2/ 4/ 20 20 4/ 4/ 20 20 6/ 4/ 20 20 8/ 4/ 20 20 10 /4 /2 02 12 0 /4 /2 02 0 2/ 4/ 20 21 4/ 4/ 20 21 6/ 4/ 20 21 8/ 4/ 20 21 10 /4 /2 02 12 1 /4 /2 02 1

350

December 2021 Soybeans 1500

Cents per Bushel

1400 1300 1200

Intense heat and drought have plagued large swaths of Brazil and Argentina, putting significant pressure on production estimates. Recent precipitation provided some relief to the beleaguered crop, but analysts continue to chip away at yields. Weather patterns over the next two to three weeks will determine the final size of the crop, but it’s hard to believe it’s getting bigger. Robust Chinese demand continues to encourage South American soybean production. This past year, Brazil shipped over twice as many soybeans to China than the United States.

1100

2022 WASDE REPORT

1000

Overall, the historically volatile January World Agricultural Supply and Demand Estimate (WASDE) report left the market with a mundane feeling and relatively small changes to digest. Traders were eager to know South American and World crop projections due to the current weather situation. Regarding corn, U.S. balance sheets remain comfortable with a carryout of 1.540 billion bushels, up 305 million bushels from last year. Final yield for the year came in at 177.0 bushels per acre. Notable changes were a slight decrease in exports offset by an increase in ethanol use. This has been reflected in the cash market as the export program struggles to keep its rapid pace and domestic ethanol margins keep corn in the U.S. On the soybean front, a 0.02 bushels-peracre yield bump for a final ending yield of 51.4 bushels per acre bumped

900

5/ 3/ 20 19 7/ 3/ 20 19 9/ 3/ 20 19 11 /3 /2 01 9 1/ 3/ 20 20 3/ 3/ 20 20 5/ 3/ 20 20 7/ 3/ 20 20 9/ 3/ 20 20 11 /3 /2 02 0 1/ 3/ 20 21 3/ 3/ 20 21 5/ 3/ 20 21 7/ 3/ 20 21 9/ 3/ 20 21 11 /3 /2 02 1

800

BIOFUELS – MOVING AROUND The energy markets, while also showing recent strength, have struggled to find equilibrium in the tumultuous COVID-19 era. Crude oil prices initially dropped dramatically in 2020, before recovering considerably faster than the market anticipated. Ethanol margins behaved similarly over the period, falling drastically into the red in the low crude environment, only to skyrocket to near-record highs as demand improved and even

18%. While the vegetable oil feedstocks have robust demand coming down the pipeline to absorb this increase, soybean meal markets are bracing for a surplus of feed and preparing for export opportunities.

exceeded pre-COVID-19 levels in some areas. Plant runtimes struggled with staffing and logistical snarls, adding to tightness in the physical market. Renewable diesel is gaining considerable traction in the marketplace and vegetable oils are already seeing this transition. Overall vegetable oil demand will outpace supply for the next few years. Estimated additional soy crushing capacity slotted to come online in by 2025 will increase soybean oil and soybean meal production by roughly

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INPUTS AND THE ACREAGE BATTLE Grain prices aren’t the only things going up. Input costs across the country have skyrocketed for many of the same reasons we are seeing in the grain and oilseed space. Supply chain issues, labor, and geopolitical tensions continue to send influence prices, affecting fertilizer and chemicals as well. Anhydrous ammonia spiked 4% recently, hitting a record high of $1,492 per ton. Urea/ammonium nitrate 28% and 32% grades, known as UAN28 and UAN32 respectively, followed closely, trading as high as $601/ton and $699/ ton respectively. Reports circulated recently indicated that spring 2022 corn planting costs will be greater than $1,000 per acre for certain parts of the Midwest. Acreage predictions for 2022 have varied greatly. While the USDA won’t release ‘21/’22 acreage projections until March, early estimates for corn range from 88-94 million acres and soybeans range from 82-90 million acres. The implications of such large swings are obvious on the balance sheets. On the surface, economics generally favor soybeans in a high input environment, as has been the early narrative. But corn, with impressive yield increases across large parts of the Midwest along with a much more stable domestic demand environment, has clawed its way back into planting intentions.

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ARG-BRZ-US Soybean Exports to China 80 70 China Exports (MMT)

ending stocks by 10 million bushels for a carryout of 350Mbu. On the international side, Brazil was pegged at 139.00 Million Metric tons, down 6 MMT from December. Argentina followed suit, dropping 2 MMT to 46.50 MMT. These moves decreased total world production by 5% year over year, and -7% from last month’s estimate.

60 50 ARG 40

BRZ USA

30 20 10 0 2015

2016

2017

2018 Year

2019

2020

2021

US Corn Supply and Demand – Jan. 2022 2019/20 CORN Area Planted Area Harvested Yield per Harvested Acre Beginning Stocks Production Imports Supply, Total Feed and Residual Food, Seed & Industrial 2/ Ethanol & by-products 3/ Domestic Total Exports Use, Total Ending Stocks Avg. Farm Price ($/bu) 4/

89.7 81.3 167.5 2,221 13,620 42 15,883 5,900 6,286 4,857 12,186 1,777 13,963 1,919 3.56

2020/21 Est.

2021/22 Proj. Dec

Million Acres 90.7 93.3 82.3 85.1 Bushels 171.4 177.0 Million Bushels 1,919 1,236 14,111 15,062 24 25 16,055 16,323 5,602 5,650 6,466 6,680 5,028 5,250 12,068 12,330 2,753 2,500 14,821 14,830 1,235 1,493 4.56 5.45

2021/22 Proj. Jan 93.4 85.4 177.0 1,235 15,115 25 16,375 5,650 6,760 5,325 12,410 2,425 14,835 1,540 5.45

Turbulent times are likely to continue. Supply chain issues are starting to show signs of easing, but labor is a large concern moving into 2022. Inflation is another factor disrupting typical capital flows. In the short term, prices will likely remain seasonally elevated due to weather and planting risk. Longer term, the market needs to figure out if we have shifted the paradigm higher, or if it needs to revert to pre-2019 levels.

2022 INSIGHTS AND PERSPECTIVES

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2021 proved a complicated year for the Maine lobster fishery. Strong prices and respectable landings provided lobstermen with good incomes and the lobster population remains healthy. However, issues such as federal regulations designed to protect North American right whales and a warming Gulf of Maine have cast a chill on the fishery’s future.

The

LOBSTER INDUSTRY in 2022

MELISSA WATERMAN / MAINE LOBSTERMEN’S ASSOCIATION

THE FISHERY

foundation of Maine’s coastal economy.

The Maine lobster fishery is renowned as one of the world’s most sustainable fisheries. By law, each of Maine’s 4,800 commercial lobstermen are small, selfemployed business owners. Each runs his or her own boat and lives, works and spends earnings locally. Lobster remains one of the nation’s most valuable fisheries, generating more than $1.5 billion annually in revenue to the region’s economy. The lobster industry supports tens of thousands of jobs in rural communities along the coast and is the

The lobster fishery is healthy. For nine of the past ten years, lobster landings in Maine have exceeded 100 million pounds per year. The record was reached in 2016 when annual landings hit more than 132 million pounds, valued at over $540 million. Lobster landings took a downward turn in 2020 when Maine lobstermen harvested 96 million pounds. Anecdotal information, however, suggests that 2021 landings will once again top 100 million pounds and reach a new record value.

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2022 INSIGHTS AND PERSPECTIVES

Yet despite strong prices and landings, the Maine lobster fishery faces several implacable challenges in the next few years.

NORTH ATLANTIC RIGHT WHALES Since 1997, the National Marine Fisheries Service (NMFS) has coordinated a management plan for the endangered North Atlantic right whale population through the Atlantic Large Whale Take Reduction Team (TRT). The TRT is a diverse group of stakeholders who advise NMFS in developing management plans to mitigate the risk to marine mammals posed by fishing gear. New England lobstermen have made significant modifications to their fishing gear over the past two decades to protect the whales and these right whale conservation measures have worked. Nearly 30,000 miles of rope have been removed from the Gulf of Maine and right whale entanglement traced to U.S. lobster gear has dropped by 90% since 2010. There has not been a single known right whale entanglement

in Maine lobster gear in almost 20 years; Maine lobster gear has never been linked to a right whale death. Since 1990, when there were fewer than 275 known individuals, the right whale population has rebounded, reaching approximately 483 whales in 2010. However, in recent years, it appears to have plateaued and shown modest declines again, raising concerns for the future. While ship strikes and fishing gear entanglements are the most visible causes of right whale mortality, their greatest threat to survival may in fact be climate change. Due to warming ocean waters, researchers documented a major shift in the distribution of right whales beginning in 2010. The whales began travelling to the Gulf of St. Lawrence in Canada during late spring, summer and early fall to feed. Currently more than 40% of the population can be found in the Gulf of St. Lawrence each year. The stress of shifting food sources and the danger of visiting waters that historically did not have right whale conservation measures

in place contributed to a significant decline in the population. NMFS declared an “unusual mortality event” for right whales in 2017 when 12 right whales were known to have died in Canada. This was followed by another 10 deaths in Canada in 2019. Many of the dead whales were female, leading to additional worries about the long-term viability of the population. NMFS issued a 10-year whale conservation plan in May 2021, designed to protect right whales from harm by U.S. fixed gear fisheries. The plan will require that Maine lobstermen to reduce their entanglement threat to the whales by 98% by 2030. If lobstermen cannot meet that goal, NMFS will not license the fishery to operate. The first phase of the plan requires Maine lobstermen to meet a 60% risk reduction by placing more traps on each endline to remove additional rope from the water, weakening the ropes that remain, expanding gear marking to better identify gear on entangled whales,

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MARKET DEMAND FOR ALL SEAFOOD ITEMS ROSE DRAMATICALLY DURING 2020, WITH LOBSTER SALES IN THE RETAIL SECTOR GROWING BY 87%

and closing a thousand square mile area of prime offshore lobstering bottom for a third of the year. Additional actions are required in 2025 and 2030, creating pressure to convert from traditional traps connected to the surface by a buoy line to so-called “ropeless” fishing. Ropeless fishing is a new and unproven technology that uses an acoustic transmitter to release the trap’s buoy line from the bottom when a lobsterman is ready to haul that trap. While there has been testing of this technology, its utility for a large-scale fishery such as Maine’s is uncertain.

WARMING WATER Scientists have determined that the Gulf of Maine is warming two and a half times faster than the global average. To date, warmer temperatures have had a positive effect on the lobster population, creating expanded areas of suitable lobster habitat and increased lobster abundance. More areas of the coast are now available as nurseries for juvenile lobsters; warmer water temperatures have sped up the time until lobsters reach legal harvest size. Maine’s lobster landings have increased steadily over the past three decades,

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averaging 37 million pounds in the 1990s, 65 million pounds in the 2000s, and 117 million pounds over the last decade. However, researchers predict that continued rising temperatures could lead to a decline in the Gulf of Maine lobster population and reduced annual landings.

STRONG MARKETS When the pandemic began in 2020, lobstermen and seafood dealers alike worried that closure of restaurants, resorts, and other food service operations would decimate demand for Maine lobster. As a result, businesses quickly switched emphasis from lobster for food service and restaurants to lobster as a food for the home cook. The Maine Lobster Marketing Collaborative promoted lobster to grocery store chains while seafood companies set up online purchasing options and added new prepared items using lobster. Market demand for all seafood items rose dramatically during 2020, with lobster sales in the retail sector growing by 87%, based on Nielsen IRI data. Consumer demand for frozen seafood products, in particular items

2022 INSIGHTS AND PERSPECTIVES

made with lobster, remains high as the pandemic enters its third year. The lobster markets continued to show great strength and resiliency through 2021. As food service and restaurants opened back up, expanded retail and direct-to-consumer markets remained robust. Lobstermen reported both strong landings and record prices at the docks throughout the year.

CONCLUSION The Maine lobster fishery is one of the most sustainably managed fisheries in the world, the result of conservation measures taken by the fishermen themselves. However, the fishery faces great uncertainty as the clock ticks on the 10-year whale plan and its mandate for lobstermen to implement radical risk reduction measures. While the lobster population remains healthy, lobster landings are expected to soften in future years as lobster stocks adapt to changing ocean conditions. Nonetheless, strong lobster markets provide a reason for optimism, not only for the fishery’s future but also for the economic future of Maine’s fishing communities.

THE NORTHEAST FOREST PRODUCTS 2022 Review and Outlook

ERIC KINGSLEY / INNOVATIVE NATURAL RESOURCE SOLUTIONS LLC

The forest industry, from the woods to the mill, continues to be a cornerstone of the Northeast’s rural economy. Some sectors have seen growth, others decline, but the industry remains the interconnected network that supports landowners large and small, loggers and foresters in the woods, and mills that produce a range of products and anchor so many rural communities. SAWMILLS AND LUMBER This past year has seen wild volatility and price run-ups for lumber, and it isn’t clear that price stability will return in the near term. On the demand side, this is driven by a combination of new housing starts, combined with lots of additions and remodeling as work-from-home appears to be a permanent fixture on the landscape. Supply has also been constrained, as some mills — mostly in other parts of the country — have been forced to curtail production due to workforce or log supply challenges. Signs point to continued strong demand for lumber, which should keep prices strong. In addition to continued housing starts and renovations/remodeling, all of those new spaces need flooring and furniture — providing markets for the softwood and hardwood lumber sectors. Interestingly,

normal market dynamics (supply and demand) have resulted in very little of the increased price of lumber trickling down to landowners for their timber. Put simply, there is an ample supply of timber for sawmills and an adequate logging infrastructure to deliver the timber — so far. One area that has limited growth has been the ability of mills to move their residuals – wood chips and sawdust resulting from the sawing process. With the loss of so many pulp and biomass markets that use chips over the past few years, it’s not clear that mills in the Northeast can significantly increase production — or build new mills — without new and diversified markets for residuals. Absent a meaningful increase in demand, don’t expect sawlog prices to mirror the rises in lumber prices.

PULP AND PAPER The pulp and paper mills in Maine and New York that are operating all appear to be positioning themselves for the future. We’ve seen meaningful investments in wood yards, capacity improvements, and changes to new grades of paper. There has been a clear and necessary shift away from printing and writing paper grades to a more diversified mix of products that include market pulp, packaging grades, and some food-grade papers. Having a diversity of products helps mills, and the entire region, weather changing markets and product cycles. The market is finally settling after the unexpected loss of the significant pulpwood market at the Androscoggin Mill

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market for local loggers and landowners.

LOGGING

INDUSTRY

Loggers are the key link in a supply chain that runs from the wood to the mill and then to the market, and this link is struggling. Many loggers are facing supply chain challenges — stories of months-long waits for parts to run equipment are common, and continuing. Finding drivers for log trucks remains a challenge, and the entire sector has an aging workforce. These challenges have served as a constraint on wood for a number of mills, and prices have risen in many cases to reflect logging-related supply challenges. At the federal level, loggers were able to receive COVID- relief funding via the Pandemic Assistance for Timber Harvesters and Haulers. Maine followed with a similar program. While these were certainly welcome relief for those businesses that needed them to survive, the entire industry needs to evaluate how to support the long-term viability of loggers and truckers.

CARBON in Maine. When a digester at this mill exploded in April 2020, its wood yards were full for mud season. All of this wood hitting the market, coupled with the logging capacity that served this market, caused significant disruptions across the entire region. Arguably landowners and loggers in New Hampshire and parts of Massachusetts felt this loss even harder than their counterparts in Maine — and continue to feel it today.

BIOMASS Biomass electric facilities continue to face long-term challenges, most notably economics. It’s generally true that biomass electricity is more expensive than many other alternatives, particularly when compared to other renewables such as wind and solar. Of course, there are a lot of reasons to want biomass to succeed — the market they provide for low-grade wood provides real opportunities for exceptional forest management — but that isn’t how electricity prices are set. While a short-term increase in natural gas prices is providing a temporary reprieve for biomass electric plants, it isn’t enough to drive investments in existing or new facilities. Biomass heating provides some opportunity for expansion, and we are seeing a number of industrial and institutional projects on the drawing board utilizing wood pellets or chips. Biomass heat is less expensive than oil heat, and has a long-term history of price stability. These markets are small, however, when compared to biomass electric (think thousands or tens of thousands of tons instead of hundreds of thousands of tons), but provide a sustainable

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2022 INSIGHTS AND PERSPECTIVES

Carbon is beginning to play a role in the forests of the region, and this will only grow. Early in the process 10 years ago, several very large landowners took advantage of compliance forest carbon offset markets. More recently, a number of mid-sized landowners have engaged in carbon sales, and this has implications for future harvests. Many of the emerging carbon opportunities for landowners allow for continued timber harvest — some even promote it — but expect these lands to transition to longer rotations. As carbon sale opportunities continue to evolve, I expect we’ll see many small landowners and some large landowners engage in the programs, and there will be implications across the entire supply chain.

LOOKING AHEAD While the forest industry always has ups and downs, there is good news on the horizon. A new sawmill has opened in Maine, specializing in small-diameter spruce/ fir that is so abundant in the central part of that state. At the former Madison paper mill, a company will soon be manufacturing cellulosic insulation from wood chips, bringing an entirely new product to the industry. Another company has announced plans to co-locate at a forest industry site and make biochar, a product that can be used as a soil amendment and sequester carbon for centuries. Multiple firms have announced plans to build a biorefinery in the region, turning low grade wood into liquid fuel. Of course, announcements are not (yet) markets, and some may never materialize, but there are undeniably firms making investments in new products that will provide opportunities for a more robust and diversified forest industry.

2022 OUTLOOK FOR THE

DR . C H AR L I E H ALL, T E XAS A&M UNIVE RS IT Y

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Green Industry

As in other agricultural sectors, widespread labor shortages are continuing to hamper the ability of green industry companies to capitalize on the surge in lawn and garden spending that is expanding as the country continues to recover from the devastating COVID-19 pandemic, though it’s clear the labor markets will not return to the way they were before the pandemic. The retirement of baby boomers, lingering challenges associated with the pandemic for women in the workforce and career revaluation among many younger workers are driving a long-term structural shift in the labor market that is affecting all sectors of the economy, including the green industry.

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2022 INSIGHTS AND PERSPECTIVES

Employers are wooing workers with improved pay, flexible work arrangements, access to state-of-the-art technology, and better employee perquisites overall, and these changes are just the beginning of what is a significant shift in the workforce. Firms across the green industry continue to find themselves on the challenging end of the labor issue as they try to figure out how to navigate the shocks unleashed by the pandemic. Nonetheless, consumer spending has been strong and continues to expand at a robust pace, and this has increased pressure on the supply chain and exacerbated inflation. The surge in goods spending, which has helped lift the economy

out of the depths of the pandemic recession, now appears to be retreating and giving way to a faster pace of spending on services. That noted, the increase in services spending will likely not be enough to keep overall consumer spending growing at the rapid rates seen recently, as the impact of government stimulus dwindles. The pervasive supply chain wrinkles that have been hampering many parts of the economy are likely to continue to be ironed out over the course of 2022. One silver lining of the moderation in consumer goods spending is that a thinning flow of goods will help alleviate port congestion and jammed distribution channels. Furthermore, the growing deployment of COVID treatments and vaccines should help reduce unplanned factory closures and port disruptions within the major trading partners of the United States.

Keeping this in mind, green industry supply chains should be functioning closer to normal by late 2022. Inflation on goods has been the primary contributor to the historically high rates of inflation experienced this year and will likely remain at elevated levels through mid-to-late 2022. The unwinding of the Fed’s asset purchases, known as “quantitative easing,” which was widely expected, will likely support modestly higher long-term interest rates in coming years and the Fed has already signaled several rate hikes may be coming this year. In the Index of Prices Paid by Growers, I estimate that grower input costs increased 8.8% in 2021 and currently forecast another 4.7% in 2022. Inflationary pressures should

start to subside around the fourth quarter as many of the supply side issues wrinkling the green industry supply chain begin to get ironed out. While rising input costs won’t likely subside until 2023, there has been less price sensitivity throughout the retail and landscape portion of the supply chain and growers across the industry have been able to raise prices and increase their working capital. With the additional cash flow, firms have either paid down debt, invested in CAPEX or increased inventory (if they could source the inputs). This build-up in inventory will inevitably lead to future surpluses of certain plant material, however this bellwhip effect will not likely occur until 2023 or beyond. In the interim, firms should focus on the experience, convenience and other elements of their value proposition to warrant the higher prices throughout the supply chain.

The next two years will likely bring more merger and acquisition activity since venture capital firms are starting to show interest in the industry again. More B2B vertical coordination tools will be used with more standing orders, increased lead times, greater use of web shops and online platforms, and more virtual sales contacts/demos. Strengthening vendor and customer relationships will be even more critical. Innovation will lead to alternatives to plastics and a more sustainable mindset throughout the supply chain (e.g., less weight, less waste, lower carbon footprint). E-commerce applications will expand, and the use of technology will continue to disrupt (e.g., artificial intelligence applications, order management, personalization, warehouse automation, and big data analytics).

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Bolstered consumer demand will likely continue this year and into 2023, though there may be a short-term constriction in customer palette in that certain plants will be in short supply. There may even be fewer new plant introductions in the near term. Numerous firm-level marketing efforts are underway and now is the time to emphasize plant benefits and sustainability initiatives in marketing programs.

that engaged in gardening and landscaping when they stayed at home more during periods of downturns (or now pandemics). While there has been greater emphasis on the health and well-being benefits of plants, the jury is still out as to whether we have moved the needle in getting them to view the industry as “essential” and something they need in their lives daily.

There is one question that I cannot answer, however, and that is: Will consumers continue to spend on lawn and garden products and services at the same elevated rate as they have during the pandemic? Historically, their “consumption” has retreated to trend levels as the industry not been successful in retaining many of the new consumers

‘‘

Will consumers continue to spend on lawn and garden products and services at the same elevated rate as they have during the pandemic?

NORTHEAST AGRICULTURE

2022 INSIGHTS AND PERSPECTIVES

’’

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2022 NORTHEAST

VEGETABLE CROPS OUTLOOK B R ADL E Y R ICKARD, CO RNE LL UNIVE RS IT Y

Consumer Price Indexes Fresh and Frozen Vegetables Food at home and Food Away from Home (Base year 1982–84 = 100)

380 330 280 230

20 1 20 9 J 19 an 20 Fe 19 b 20 M 1 a 20 9 A r 19 pr 20 M 19 ay 20 Ju n 20 19 J 19 ul 20 A 19 ug 20 Se 1 p 20 9 O 19 ct 20 N 1 ov 20 9 D 2 e 20 0 J c 2 an 20 0 F 2 eb 20 0 M 2 a 20 0 A r 20 p 20 M r 20 ay 20 Ju 20 20 n 2 Ju 20 0 A l 2 ug 20 0 S 2 e 20 0 O p 2 c 20 0 N t 20 ov 20 De 2 c 20 1 J 2 an 20 1 Fe 21 b 20 M 2 a 20 1 A r 21 pr 20 Ma 21 y 20 Ju n 20 21 J 21 ul 20 Au 21 g 20 Se 2 p 20 1 O 21 ct N ov

180

Fresh Vegetables

Frozen Vegetables

Food at home

Food away from home

Source: U.S. Bureau of Labor Statistics, Consumer Price Index, 2020. Available at: https://www.bls.gov/cpi/

Figure 2.

Northeastern Vegetable Production 2019 Production (Million cwt)

18 16 14 12 10 8 6 4 2 N

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The Northeast is an economically important region for the production, and certainly the consumption, of many vegetable products, both fresh and processed. In the nine states that comprise the Northeast region1, vegetable crops, including potatoes, have generated an annual total farm value of approximately $800 million in recent years. Figure 2 highlights the production of the major vegetable crops that are produced in key Northeastern states. The crops shown in Figure 2 are major contributors to the agricultural economy in their respective states, and they also represent a significant share (i.e., a top ten producer) of the total U.S. production for that crop. In particular, New York is one of the top-five producing states of cabbage, snap beans, and squash; New Jersey is a top-five producing state of bell peppers and spinach.

Figure 1.

Vegetable markets, similar to many other sectors in food industry, have experienced a range of stressors and supply chain complications over the past two years. Figure 1 illustrates price indices that U.S. consumers have paid for fresh and frozen vegetables between January 2019 and November 2021. From November 2019 to November 2021, we observe an increase in prices of approximately 3.5% for frozen vegetables and a 5.7% increase for fresh vegetables. Over the same time period, we also show price patterns for food consumed at home and food consumed away from home. Prices for food items consumed at home increased by 10.4% overall and prices for food consumed away from home increased 9.8%. These price patterns suggest that prices for vegetable products have been less volatile, and more stable, relative to other food sectors.

Source: USDA-NASS, Agricultural Statistics, 2020. Available at: https://downloads.usda.library.cornell.edu/usda-esmis/files/i3860694x/z890sn81j/cv43pq78m/Ag Stats 2020 Complete Publication.pdf

The nine Northeastern states considered here include NY, MA, ME, CT, RI, NH, PA, NJ, and VT.

NORTHEAST AGRICULTURE

2022 INSIGHTS AND PERSPECTIVES

ONGOING EFFECTS OF COVID-19 IN VEGETABLE MARKETS The effects of COVID-19 have been substantial for all food categories including vegetables, yet the implications have not been uniform across all individual vegetable crops produced in the Northeast. One of the key drivers determining the impact of COVID-19 for vegetable crops is the relative demand for the product in food retail markets (supermarket sales) versus foodservice markets (institutional and restaurant sales). During much of 2020 and 2021, COVID-19 had much larger effects on vegetable sales in foodservice markets, and a relatively large proportion of vegetable consumption occurs in foodservice markets. The longer-term effects, including the impacts on frozen vegetable sales and the use of vegetables in food prepared at home are yet to be fully understood. However, there is building evidence that after the initial disruption on both demand and Weekly Potato Shipments,

Figure 3.

First 19 Weeks in 2019 and 2020: Food Retail Shipments in Colorado (CO) and Foodservice Shipments in Idaho (ID). 100

Weekly Shipments (millions of pounds)

90 80 70 60 50 40 30 20 10 CO 2019

CO2020

ID 2019

ID2020

0 1

Weeks Since the Start of the Calendar Year

supply of vegetables in 2020, prices and shipments for most vegetable crops have returned to levels observed prior to COVID-19 by this point. Figure 3 illustrates the effects of COVID-19 in the U.S. potato sector with a specific focus on patterns in the states of Colorado and Idaho in 2019 and 2020 (Colorado represents a source of primarily retail potatoes, and Idaho is a key source of foodservice potatoes). The primary shock began in week 10 in Figure 3 (on about March 10, 2020). Following this initial shock, the data show a rapid decline in potato shipments to foodservice, which are concentrated in Idaho shipping points. Colorado shipments, however, which are more concentrated on retail sales, saw a rapid increase. In the short run, this rise in retail sales of potato products did not offset the foodservice loss. By week 19 of the graphic (May 11, 2020), however, both the positive retail shock and negative foodservice shock had largely dissipated, and shipments returned to normal levels. This does not suggest that foodservice had returned to normal volumes, but rather that shippers had found alternative ways of moving their output from foodservice to retail channels. Given the importance of labor to the vegetable sector in the Northeast, a major concern related to COVID-19 is the long run effect on the supply of farm workers. The COVID-19 crisis has heightened the farm sector’s awareness of the importance of being able to recruit and retain a consistent supply of productive, healthy, and well-trained workers. The H-2A visa program is used by many vegetable farm operations in the Northeast; nationally approximately 32,000 guest worker visas were issued in 2005 which has grown to over 255,000 visas by 2021. The COVID-19 crisis fueled a deep concern that growers would not be able to recruit workers from foreign labor markets, however, the data presented in Figure 4 suggest that these concerns have not materialized in practice.

Source: USDA-AMS, U.S. Market News, 2020. Available at: https://www.ams.usda.gov/market-news

Figure 4.

H-2A Jobs Certified and Visas Issued

350000 3.0000 250000 200000 150000 100000 50000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Jobs Certified

Visas Issued

Source: U.S. Dept. of Labor OFLC, and U.S. Dept. of State. Available at: https://www.dol.gov/agencies/eta/foreign-labor/performance Note: For 2021, the totals shown only include data for the months January through November.

ANTICIPATED MARKET TRENDS FOR VEGETABLES IN 2022 AND BEYOND In 2022 and beyond there are three major factors that will continue to shape the vegetable industry in the Northeastern United States. First, at the farm level, a continuous supply of qualified labor continues to be the number-one issue for vegetable growers. For fresh vegetable production in particular, labor represents the greatest share of total production costs. Improvements in technology and the substitution of automated, robotic and intelligent machines for workers will continue to occur at the farm level which could lead to long run reductions in production costs and improvements in crop quality. Second, for vegetable distribution and related businesses in the middle of the supply chain, there is

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It is expected that we will see a resurgence in demand for local and/or organic fresh produce, and this presents a real opportunity for Northeastern producers that are able to supply these markets.

widespread speculation that we will see additional structural change leading to greater industry concentration. This is part of a longer trend, but it has also been fueled by COVID-19 which has led to a reduction in the number of produce buyers and increased consolidation among major food retailers given their capacity to adapt to an evolving marketplace (including the expansion into online sales). Vegetable farms in the Northeast will continue to have access to fewer and fewer buyers as mergers and acquisitions occur, and this will lead to downward pressure on wholesale and farm-level prices. At the same time, fewer buyers and increased consolidation among food retailers will increase market power for these food distributors with their downstream consumers, and as a result we could see higher prices for vegetables in supermarkets, as the power of retailers grows. Third, future trends in vegetable consumption in the Northeast will be driven largely by income. Recessions (or pandemics) have the capacity to decrease nutritional intake and dietary quality if consumers resort to more calorie-dense “comfort” foods. However, some households

NORTHEAST AGRICULTURE

2022 INSIGHTS AND PERSPECTIVES

during COVID-19 have instead increased the time spent planning and preparing meals at home and there is evidence that this has led to an increase in overall dietary quality and vegetable consumption. A large share of vegetables (approximately 40%) are typically consumed away from home in the foodservice sector, and any rebound of the foodservice industry is expected to increase overall vegetable consumption. Frozen vegetable sales in the food retail market increased dramatically in 2020 and some of that increase was sustained in 2021; this suggests that COVID-19 allowed some consumers to rediscover frozen vegetables and that this category may end up having long run benefits from the pandemic. During the pandemic, many consumers became less interested in certain credence attributes (such as how or where the food was grown). It is expected that we will see a resurgence in demand for local and/or organic fresh produce, and this presents a real opportunity for Northeastern producers that are able to supply these markets.

NOTES

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The views and opinions expressed in this publication are those of the original authors and do not necessarily reflect those of Farm Credit East. The information provided in this report is not intended to be investment, tax or legal advice and should not be relied upon by recipients for such purposes. Farm Credit East does not make any representation or warranty regarding the content, and disclaims any responsibility for the information, materials, third-party opinions and data included in this report. In no event will Farm Credit East be liable for any decision made or actions taken by any person or persons relying on the information contained in this report. Links to third party websites are provided for informational purposes only. Farm Credit East does not necessarily endorse or support the content of such third party sites.

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