Low-grade consumption remained muted across key consuming regions in July. Traders say that the three-legged stool of packaging, agriculture, and manufacturing is experiencing muted demand across all three.
Following a massive price hike during the COVID-19 pandemic, the pallet market has struggled to regain its footing. With historically low prices for finished pallets and a glut of recycled pallets, production of new pallets has sagged. Traders have sensed a bottom of late, as more producers are declinging counters. However, a true recovery and production boon remains uncertain.
The US agriculture market also continues to face a decline in farm income as producers have struggled to keep up with cost inflation. According to the USDA 2024 Farm Sector Income Forecast, total inflation-adjusted cash receipts (for both cash crops and animal products) are forecast to fall $32.2 billion (6.2%) from 2023 to $485.5 billion in 2024. With the number of farms decreasing due to both consolidation and real estate development, the sector has looked to interest rate cuts, regulatory overhauls, and subsidies as paths to an improved market.
The oft-debated manufacturing sector also remains muted from a low-grade perspective. According to the Federal Reserve, domestic manufacturing production, sales, work started, and orders index, the sector has maintained a steady pace from 2011 to the present, excluding a sharp decline and then recovery during the pandemic. Low-grade producers servicing the manufacturing sector have reported little change in consumption.
With all key drivers of low-grade demand muted and prices relatively low compared to recent years, trading ranges have widened. Several items have maintained $50-plus spreads in reported levels between equally graded products. Market participants on both sides of the table cite the significant variances in low-grade quality and a willingness to pay a premium or offer a discount to account for these spreads.
