Kenneth Scott Zuckerberg

Effects from higher interest rates are permeating rural industries

Grain and farm supply cooperatives have delivered tremendous value to their customers over the past three years, a period that featured extreme volatility in prices for grain, fertilizer and energy as well as unpredictable economic activity stemming from COVID and the Russia/Ukraine conflict.

To the surprise of most observers, wholesale fertilizer prices and natural gas prices have been declining since last fall, both globally and in the United States. 

The war in Ukraine and inflation will remain the two biggest factors for commodity
markets in the first half of 2023. 

The Russia-Ukraine war, surging inflation, and an energy crisis joined the COVID-19 pandemic this year as major events defining the operating environment for U.S. companies. We can expect to feel the aftershocks in 2023. 

Although the concept of growing food indoors is not new, investment in growing crops indoors in vertically stacked layers has ballooned in recent years. The labor, health, and supply chain issues created by the COVID-19 pandemic has driven even more new consumer and investor interest.

Despite ongoing impacts from Russia’s invasion of Ukraine and lingering supply chain
effects from the pandemic, the U.S. economy remains incredibly resilient.

By producing fuel using sources with lower carbon intensity compared to traditional petroleum based products, the U.S. biofuels sector is well-positioned to play a major role in reducing greenhouse gas emissions.

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

Although precision agriculture has been around for more than 25 years, the past decade has introduced advanced computing technologies such as data analytics, artificial intelligence, connected devices, robotics, and automation.

Russia’s invasion of Ukraine has shaken up global agricultural markets, including vegetable oil. But some perspective is needed: Even before the war, global vegetable oil prices had appreciated sharply. Since 2020, vegetable oil prices are up 113% versus gains of 51% for soy meal and 71% for unprocessed oilseeds.

Global grain markets have been managing through a period of extreme price volatility following Russia’s military invasion of Ukraine, a situation that has reignited the grain rally of 2020-21.

Against all hope for a better start to 2022, omicron has crashed the New Year’s party. Renewed supply chain disruptions are being felt throughout the economy, causing empty shelves again and threatening to fan the flames of inflation.

As we enter the third year of the COVID-19 pandemic, the virus is still in control of the economy.

U.S. crop farmers and the farm supply cooperatives serving them are facing operational anxiety heading into 2022, driven by high fuel prices, shortages of agrochemicals (herbicides, fungicides, insecticides) due to COVID-related disruptions and, most importantly, the recent parabolic rise in fertilizer prices.

Businesses of all sizes and across most industries are wrestling with perhaps the worst supply chain bottlenecks to date

Ag retailers, including farm supply cooperatives, are benefitting from crop farmers’ strong spending on inputs and agronomic services in a second year of above-average grain prices.

The long-awaited period of pent-up, exuberant demand is here. And for all the benefits to businesses and consumers, bumps are unavoidable – labor shortages, price inflation, supply chain disruptions, and uncertainty about what a new steady-state economy will look like. They loom large, even as we celebrate a return to normalcy.

China shook up the U.S. feed grain export market this past year when it nearly tripled its previous year’s purchase of soybeans, and made record purchases of sorghum and more recently, corn.

Anticipation of a return to normal is in the air. But for the economy and rural industries, there will be no going back to pre-COVID conditions.

U.S. farmers are in a sound financial position heading into spring 2021 given the cyclical turn in grain prices and robust government support, both of which have driven a rise in net farm income.

The U.S. Dollar Index saw rapid deflation in 2020 and has coincided with a rally in commodity prices. 

2021 has quickly altered the political and market landscape. And optimism, particularly about the second half of the year, is rising. But to get there, all of us must muddle through for a few months more.

The speed of the economic recovery will largely hinge on the availability, dissemination and reach of COVID-19 vaccines, pushing the expected burst of pent-up consumer demand into the latter half of 2021, according to a comprehensive year-ahead outlook report from CoBank’s Knowledge Exchange division.

An explosive rally in grain prices – driven by a smaller-than-expected U.S. harvest, strong China export demand, dryness concerns due to La Niña, and resulting tight corn and soybean stocks – dramatically changed the complexion of the 2020-21 grain marketing season.

Farm supply service cooperatives remain the dominant form of input distribution in North America. 

The coronavirus pandemic has now impacted all four quarters of 2020, and seemingly every aspect of life and business. 

Over the past four months, every rural industry has grappled with how to adjust its business to remain relevant and sustainable in the pandemic. Agricultural supply chains have been massively disrupted and lost revenue. Water and power suppliers have adapted as commercial and industrial customers went dark and demand shifted to residential customers. And the communications industry is seizing a moment when home broadband access has become vividly essential, to help expand access to everyone, everywhere.

The economic shock in spring 2020 resulting from COVID-19-led economic shutdowns was unprecedented, causing ethanol demand destruction. 

The beginning of a new quarter finds us in unparalleled times – a pandemic ravaging the world, the U.S. economy in shutdown, millions of Americans out of work, and financial markets in turmoil. 

According to an analysis of CoBank’s proprietary borrower database, ag retailers are on relatively firm footing as they prepare for spring following last year’s complicated agronomy season.

The fourth quarter is ending with much more optimism on trade and the economy compared to how it began. 

The U.S. rural economy will continue to face headwinds in 2020 and is expected to underperform relative to the economy of urban America. 

Uncertainty over trade policy, weather and African Swine Fever dominated agricultural markets last quarter.