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US producers face margin squeeze as costs rise and competition intensifies
An USDA economist said disruptions to shipping, including the Strait of Hormuz, can support commodity prices but are not a reliable long term profit source for producers.
Profit margins for nearly all US commodity producers are coming under increasing pressure as rising input costs and competition from global suppliers intensify, according to a briefing shared by a USDA economist at an industry symposium.
Justin Benavidez, chief economist at the US Department of Agriculture, said agricultural commodity markets have faced both cost pressures and a shift in how prices and production expenses move together. He noted that commodity prices and production expenses generally tracked each other until around 2015, after which global competitors expanded production and captured market share, narrowing returns for US producers.
Benavidez argued that geopolitical disruptions have become some of the few catalysts that can meaningfully support agricultural commodity prices, but he questioned whether markets can depend on such shocks for sustained profitability. He urged producers to look instead at new markets and new uses.
He also pointed to shipping through the Strait of Hormuz as a key complication for agricultural supply chains. World Grain reported that the strait typically handles about one third of the world’s seaborne fertilizer trade, and disruptions there can raise fuel prices across the chain, while also delaying fertilizer availability, including shipments into the port of New Orleans.