The Ag Globe TrotterDr. Dave M. Kohl
Welcome to the weekly edition of The Ag Globe Trotter by Dr. Dave Kohl.
The days are becoming longer and spring is around the corner. Unfortunately, the feeling of optimism is being clouded by many uncertainties. Let's examine what is ahead for the agriculture industry in the first quarter of 2022 by discussing some of the topics people in the agriculture industry are inquiring about.
How has the COVID-19 pandemic changed the agriculture industry?
We are nearly two years into a global pandemic. Let’s take a step back and examine how the pandemic has changed the agriculture industry. First, we discovered how vulnerable the industry was to supply chain issues. Consolidation and global interconnectivity function well when there is stability, but the pandemic highlighted weaknesses. Of course, just-in-time inventory management was one of the vulnerabilities. The pandemic also brought to light how many critical inputs, such as fertilizers, sprays and technology components, are produced outside the U.S. for the agriculture industry in both politically and military sensitive areas.
One positive from the pandemic was that empty store shelves helped the public, many of whom are disconnected from agriculture, realize the importance of the agriculture industry. Of course, the industry is very adaptive and many individuals were able to capitalize on trends, such as working remotely, and more people moving to rural America, which has some links to the success of niche markets.
Input costs and the duration of inflation
Inflation is the hot topic of 2022. The aforementioned supply chain issues coupled with consumable products such as fertilizers and other components that are produced in China and Russia inflated costs that could be with the industry for a while. The generous stimulus checks and unemployment benefits have impacted the labor supply. Increases in labor costs as a result of union contracts and other fixed contracts suggest an elevated labor cost structure. Higher oil and energy costs ripple through much of the cost structure of agriculture. The price of oil and energy and any geopolitical or military initiatives that could influence production or distribution should be on your watchlist.
Pay attention to consumer confidence in the second quarter of 2022. The Index of Consumer Sentiment, published by the University of Michigan, has been in the 60s and low 70s for the past seven months, which is far below the 90-level indicating a very confident consumer.
A significant trend impacting the agriculture industry will be agricultural trade positioning. One in five dollars is generated through agricultural trade initiatives. Watch for China's possible membership ratification in the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP).
Three, four, or possibly more interest rate increases of one quarter of one percent will be a prime determinate in the direction of the U.S. and global economy and the value of the dollar.
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.
© Northwest Farm Credit Services 2022
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