The farm economy is generally solid despite recent volatility in commodity prices and rising anxiety over input costs.
However, there are still near-term risks, according to farm economists who spoke Monday at the Ag Outlook Forum in Kansas City, Mo.
“At a high level. Economic conditions in agriculture are remarkably strong,” said Nathan Kauffman, Omaha branch executive and Kansas City Fed vice president. “Incomes are incredibly high.”
Futures prices – especially for wheat, which has risen and fallen sharply on news of the Russian invasion of Ukraine – have been volatile, but farmers are still getting good prices, said Kauffman and USDA Chief Economist Seth Meyer.
Net cash farm income in the U.S. has been on a steady incline since 2020 and rose to $168.5 billion in fiscal 2022, up nearly 9% from 2022, Meyer said.
Key to the good shape that the ag sector is in now is demand, said Meyer. Not only did China come roaring back as an importer of U.S. ag after the trade war during the Trump administration, but Mexico and Canada have remained steadfast as major trading partners.
During the height of the U.S. and China hitting each other with tariffs in 2019, China fell to the fifth largest export market for U.S. soybeans, corn, wheat, beef, pork and other commodities. By 2021, China was back in its number one spot and is expected to remain there going into 2023.
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But there are also troubling macroeconomic trends that could profoundly impact agriculture, Kauffman noted. In recent years, the general expectation was interest rates would remain at about zero, he said, but now it’s more than 4%.
Inflation is also a significant concern, Kauffman stressed. Whereas inflation has been below 2% for much of the past decade, it's now at about 8%.
“I think the risks are growing … but I still would suggest that ag is in a pretty good position,” Kauffman said, adding that ag is “in a solid financial position for the most part … but there are things to pay attention to.”
When it comes specifically to agriculture, input prices are very high and that could become a major problem in the next couple of years if commodity prices don’t remain elevated, he said.
“Short-term profits are still looking good,” he said. “The challenge is that typically input costs don’t come down quickly, but commodity prices do. You could envision an environment where we get a couple good years of harvests and commodity prices pull back, but input costs might not because those tend to be stickier.”
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