A flock of black swans is disrupting 2022
In financial terms, a black swan is an unlikely and surprising event that has a massive rippling effect on the economic climate.
In the last two years, agriculture has seen more than its share of black swan events:
- COVID-19 and supply chain disruptions
- Commodity and consumer price inflation
- Drought in the United States, Canada, and Brazil
- Russian invasion of Ukraine
Kevin McNew, chief economist for Farmers Business Network (FBN), says these factors have upended the ag economy and set the stage for historic uncertainty for farmers. McNew spoke at the 2022 Commodity Classic in New Orleans March 10.
There are many bullish fundamentals, he says.
“Top of mind in everyone’s discussion is the issues around Western Ukraine. And these are seismic disruptions, the likes of which we have not seen in modern history. We’re going to be talking and feeling about these effects for years to come,” McNew says. “We think grain prices will smash record highs in 2022. We were already on the path to achieving record highs before the war outbreak two weeks ago, so I think the world only further exacerbates many of the underlying issues that we were already facing in agriculture and the world as we move forward.”
However, there are plenty of bearish factors weighing heavily on his mind.
- Soaring input prices, including fertilizer, which is affected by rising natural gas prices. Chemical costs continue to be record high, he adds.
- Cash rents, which climbed anywhere from $40 to $80 per acre.
McNew says more than half the 2,970 FBN farmer members responding to a poll said they would alter their fertilizer management plans to accommodate fertilizer prices.
“That could mean they are going to lower their fertilizer usage or they could be looking for alternative sources,” he explains.
In the heart of the Corn Belt, farmers able to be more efficient at converting nitrogen to corn (a ratio of about .9 pounds of N per bushel of corn) plan to stick with their corn intentions. But in areas where the ratio is less efficient (the southern High Plains and Mid-South, predominantly), growers may be tempted to shift acres to other crops.
The next 12 months
FBN also asked farmers whether they would make strategic investments the next 12 months. Just over half – 53% – said they would not be buying large equipment; 34% said they would buy used farm equipment, and 13% said they planned to buy new farm equipment.
“That’s not something that says that farmers feel a great degree of certainty and willingness to invest in these uncertain times,” McNew says.
What should farmers do?
Based on poll results and analysis, McNew offers words of advice for farmers seeking to navigate 2022:
- Extreme commodity prices, coupled with extreme costs, will require decisive action.
- Look for ways to trim input costs, improve efficiencies, and think carefully about how making strategic investments will provide return on your investment.