Global economics continue to impact the ag industry
David Kohl spoke at the Northern Corn and Soy Expo about the global economic ag outlook.
FARGO, N.D. — The global economic impact on ag markets was a marquee topic at this year’s Northern Corn and Soybean Expo on Tuesday, Feb. 14. The American ag industry is persevering through a volatile time in history, but outside factors have made it difficult.
Ag economist David Kohl was a keynote speaker at the expo. He said one of the driving factors behind markets and trends we are seeing is the European war. Ukraine is one of the world’s largest wheat producers, sending waves at wheat prices that ripples across the world.
“It’s one of the 10 bread baskets in the world,” Kohl said.
Fertilizer pains producers are feeling are also linked to the troubles in Ukraine as many fertilizer components are made in Ukraine. Kohl warns if there would be a future lock down of the ports, a supply chain issue will transpire. He also predicts that even after the war concludes, it will have an economic impact for the next five to 10 years.
After a long hiatus due to COVID, China has opened their economy up. If the country starts to spend, energy and fuel prices will be affected because the country consumes 15% of the world’s energy.
Another contributing factor to the ag economy is weather, particularly weather in the southern hemisphere. Kohl named Brazil and Argentina as those countries to watch weather wise.
“It’s kind of a chaotic environment we have out here,” Kohl said.
Interest rates have been rising, the fastest since 1981. There has been a 4.5% increase in interest rates in the past year.
“Where it’s impacting agriculture producers is on operating money because that’s often on a variable rate," Kohl said. "If you really look at it, a four and a half increase increases that cost of production. If it costs you a thousand dollars an acre to put an acre of corn in or six-fifty to put beans in, you’re borrowing a good part of that and that has to go into the cost of production and then that goes into our break evens."
According to Kohl, inflation has begun to soften in the general economy, but he describes it as "sticky" in the ag economy. He describes it this way because eight out of every $10 spent in the ag economy are somehow connected to oil and energy. Producers should monitor their cash flows closely and try to grow them if possible to fight the inflation battle. Kohl suggests working with an advisory team and lender to help with this.
Kohl is hopeful in the transition being made back on the farm between generations. While the generation taking over the farm will be faced with roadblocks and obstacles, he says they will push through it.
“I am seeing a tremendous evolution in agriculture,” Kohl said. “More young people, more women in agriculture. One of those things I am finding is they’re actually better managers. ... I am very very optimistic about the future of agriculture.”