January 2, 2019

Northwest FCS News

The calendar year is turning another page and ushering in 2019. I chuckle thinking about when George Orwell’s “1984” was published, the turn of the century was way out in the future. Time flies and accelerates when one ages. Let's examine some of the key drivers for the future of the agricultural landscape in 2019.

Trade negotiations, tariffs and tweets will be at the top of the list when navigating the agriculture business climate in 2019. First, will the USMCA be ratified by the U.S. legislative branch, which is under new leadership? If not, this could result in considerable market volatility not only for agriculture, but for industrial, technology, supply chain and energy sectors. These sectors are dependent on an integrated North American continent; North America is a powerful economic engine representing 28 percent of the world’s economy with over 400 million people. The U.S. is ranked first in energy production followed by Canada at sixth and Mexico at eighth.

Where in the world do you find dominant players in economics that provide strong standards of living and high levels of productivity? In early 2019, pay close attention to production in the Southern Hemisphere. Will Brazil and Argentina be able to provide the necessary agriculture output for the global economy? Will China suppress production in the livestock sector to balance supply and demand in their region of the world for agricultural crops?

Tweets and breaking news headlines will dominate information flows. This will require producers to maintain discipline and manage around the extraneous noise to focus on the elements that can be controlled. Knowing your cost of production; having a strategy for success; and executing your production, marketing, risk management and financial plans will be critical in 2019.

Weather will be a key driver for 2019. Extreme weather in both hemispheres appears to be the new normal. Access to weather sites that provide global, regional and local weather forecasts will be imperative and critical to developing strategies and maintaining profitability.

The key driver of agriculture profitability in 2019 will be the direction of the U.S. economy. Is a recession around the corner? Historically, a spike in oil or energy prices and the collapse of asset bases such as the stock market and real estate have been key elements. The Federal Reserve’s tightening of economic policy and constricting of monetary policy by raising interest rates have also been factors affecting the U.S. economy. The trade elements, not only in agriculture but in the general economy, will need to be closely observed. Will the 120-month record for U.S. economic expansion be eclipsed? Economic storm clouds appear to be occurring on the horizon. Watch for three elements: short-term interest rates higher than long-term interest rates, otherwise known as an inverted yield curve; consumer sentiment dropping below 90 on the index; and a stock market decline of 30 percent.

Other factors to observe in 2019 will be whether farm refinances continue. If not, partial and total liquidations of farm properties may occur. This would lead to supply and demand imbalances in farmland and declines in farmland values in certain areas.

The business owner and manager with a high business IQ will be the difference maker. The “little bit better” principle will manifest itself in 2019. Being a little bit better in many areas of the business including production, marketing, risk management, operational efficiency and finance makes a difference on the bottom line. I recommend having three strategies in each one of these areas to be better in 2019.

Continue to observe and watch consumer and food sector changes, which appear to be accelerating. Changes such as precision agriculture, robotics, beyond meat, veganism and blockchain will be key words in any agriculturalist’s vocabulary in 2019 and beyond. The decade of the 2020s will be one of economic transition and disruption in many industries. This will create both challenges and opportunities for proactive business owners and managers.