As we approach the close of the first calendar quarter of 2014, it is time to take a brief snapshot of inbound commodity prices across industry supply chains. Prediction Two of our Supply Chain Matters 2014 Predictions for Global Supply Chains called for stable or moderating industrial commodity prices, with specific exceptions being agricultural commodities impacted by the effects of global climate change and other disruptions. Energy prices at the start of the year were forecasted to stabilize at 2013 levels.
As the first three months wind down, these predictions are for the most part, holding true.
The ongoing economic slowdown involving China based supply chains has driven down industrial commodity prices. According to year-to-date analysis provided by Macquarie Bank, the Wall Street Journal and other sources, iron ore prices are down over 19 percent, copper is down 12 percent, the lowest level since June 2010. Aluminum, lead and zinc prices have declined as well. Analysts continue to predict that global demand for industrial commodities will continue to moderate for the rest of the year.
Agriculture commodities present a far different picture. Crop setbacks brought about from drought conditions across Brazil have driven prices of coffee to new highs. The price of high grade Arabica coffee beans originating from Brazil has risen over 70 percent since the end of 2013. Year to date pricing of sugar is up slightly at .37 percent. A major virus affecting pig populations has limiting supply coupled with increased demand from China and other emerging market economies is driving up prices of pork related products including bacon. Prices of cocoa beans, wheat and milk products are also on the rise.
The severe winter that has occurred across the U.S. coupled with operational disruptions in the placement and logistics of tank and bulk commodity railcars have led to reported disruptions in supply contracts of inbound bulk commodities as commodity producers have had to shift to more expensive trucking options to accommodate food production line scheduling.
According to data compiled by the U.S. Energy Administration (EIA), international crude oil prices in January and February were nearly unchanged compared with the last two months of 2013. Global petroleum and other liquids consumption averaged 90.6 million barrels per day during January and February, 1.1 million barrels per day higher than the same period in 2013. However, severe cold winter conditions across the U.S. have strained distribution networks and provided upward pressure on prices of heating related fuels. The greatest effect has been on the availability and higher pricing of propane gas, as well as continuing large withdrawals of natural gas. EIA is currently forecasting that natural gas spot prices will average 7.5 percent higher in 2014 as a result of the impacts of severe winter this quarter.
Thus, procurement teams in food related supply chains, and to some extent, asset or energy intensive supply chains will continue to deal with inbound commodity price challenges along with challenges to reduce costs in other value-chain areas.
We encourage readers to share their observations of commodity price trends impacting their supply chain in the Comments section associated to this posting.