The Ag Globe TrotterDr. Dave M. Kohl
Welcome to the weekly edition of The Ag Globe Trotter by Dr. Dave Kohl.
The days are getting longer, and planting and livestock plans are in high gear. What are some of the elements that need to be on the economic radar screen for this spring?
Keep a close watch on the Chinese economy. In recent years, China has been the United States’ leading agriculture trade partner. Chinese citizens saved $2.4 trillion during the three-year COVID-19 lockdown. Will they start spending or be conservative in their consuming habits? This could impact the price of oil and energy, which is critical for both the U.S. and global agriculture.
Next, focus on China’s agriculture trade agreements with nations in the Southern Hemisphere. Brazil and others are becoming stronger competition for agriculture producers in the Northern Hemisphere. China's first choice may be these countries in the Southern Hemisphere where they have invested over $1 trillion since 2013 through the Belt and Road Initiative. With expanding acreage in many countries below the equator, such as Brazil, agriculture trade competition will become more intense.
Watch for the tightening of credit as a result of the regional bank failures in the U.S. and the large bank failure in Europe. This will ripple through agriculture at a time of high interest rates and inflated costs, which impacts the need for credit. Regulators and government officials tend to overreact, which is being observed in the technology sector. The effects could ripple to the agricultural industry.
Of course, weather in the U.S. and globally is a wildcard. Adverse weather conditions in major production areas of the globe can quickly change the supply and demand equation. This, compounded with the ongoing war in Europe located in a major breadbasket of the world, equates to the possibility of extreme and volatile prices, inputs and interest rates.
Watch the cattle industry and national cattle herd closely. A reduction of the nation’s cowherd because of last year's drought and consolidation across the livestock sector appears to be a trend of the future.
The bottom line is that vigilance in strategizing and monitoring of plans and establishing the financial guardrails of outcomes can provide a path for more objective decision-making. The year 2023 may be positive on the profit and loss ledger; however, given some of the perspectives discussed above, mid-decade economics could become more challenging.
Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension and other popular publications.
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