CoBank Quarterly: Clouds are Forming

Fears of higher rates and weakening economic conditions linger over the year’s second half.

Effects from the pandemic and Ukraine war continue to reverberate through the global economy. Food and energy prices remain high, though prices for underlying commodities have lost upward momentum as economic fears rise. The Federal Reserve is poised to raise rates until it believes inflation has been tamed. Unfortunately, the risk of over- or under-doing it is high given that the lag time between action and reaction in monetary policy can be long.

Supply chains are still a mess. Warehouse capacity is still hard to come by and inventory is expensive. But transportation costs have slipped since Q1, offering a glimmer of hope of more efficient days to come. Container shipping has become cheaper but conditions for agricultural transport are mixed. Rail, truck, barge, and vessel costs remain stubbornly high and capacity limited.

While agricultural and energy commodity supplies remain tight, shifts in speculative sentiment have brought prices down from their peaks. For agriculture, replenishing grain and oilseed supplies globally will require two growing seasons. And there is no relief in sight for natural gas supplies, ensuring power prices will remain high as well.

The remainder of 2022 will be far from ordinary, and particularly hard to forecast. The Fed’s job will become harder and its influence greater. But the U.S. economy and rural sectors in particular are best positioned to navigate what comes next.

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