As each new year begins, we find it valuable to reflect on the past year and consider what the next 12 months might have in store. With that, we present our list of the most significant issues and questions facing agriculture in 2023, in no particular order.
1) A Farm Income Three-peat
There aren’t many years in history where farm income exceeded 2021 and 2022 levels. However, if commodity prices continue to outpace record-high production costs, 2023 could be the third year of historically high farm incomes.
2) Farmland Market
Indiana farmland values posted a 31% increase in 2022. More recently, Iowa farmland value posted a 17% increase based on December data. So, where do farmland values and cash rental rates go from here? Such significant gains are historically rare, but that doesn’t tell us much about where the market might head in 2023.
China is, once again, on the annual watch list. This year, we’re wondering if China will again make a third year of massive – perhaps record – purchases of U.S. ag goods. For specific commodities, corn and beef have been worth keeping an eye on. On the other side of the spectrum, tensions with Taiwan and COVID continue to cause concern.
4) Tight Stocks and Global Production
Grain stocks will start the year in an overall tight situation. This means all eyes will be on global production and the risks of supply shocks, be it due to weather or geopolitical issues. The challenge here is that solid commodity prices also encourage producers to push for higher yields and expand production.
5) Farm Bill
It’s a Farm Bill year. Control of the House and Senate is split, and the House has struggled to get a speaker picked in its first few days. It’s unclear how all this might affect the Farm Bill, but it feels like we are a long way from either chamber passing a version.
Relatedly, while the Farm Bill will get all the attention, the last five years (or so) have taught us that maybe the more relevant issue is how much ad-hoc money will make its way into agriculture in 2023.
6) Interest Rates
The Fed raised short-term rates by 425 basis points in 2022. At the farm level, rates were at career lows at the beginning of 2022 and reached decade highs by the end. It’s hard to say what 2023 has in store, but AEI Premium’s forecasting tool is following these three questions: Will the Fed raise rates another 300 basis points? Will the Fed announce a rate decline in 2023? And, finally, what happens with 10-year Treasury rates, which is especially relevant to the farm economy?
7) Inflation & The Economy
2023 feels a bit like an inflection point for the battle against inflation. For instance, the Fed will either 1) get the situation tamed – providing some confidence and stability around interest rates – or 2) inflation will remain an issue morphing the Fed’s efforts into a long-term campaign.
More broadly, the overall U.S. and global economy bears monitoring. For instance, exchange rates will likely affect the competitiveness of U.S. exports.
8) Global Drama
The world is an unsettled and chaotic place right now. Case in point – Iran has been shipping drones to Russia, which Ukrainians are shooting down with U.S. and European equipment. Of course, this gets super complicated with Iran threatening Saudi Arabia, Russia’s OPEC+ ally. Friends of friends aren’t always friends.
Another version of this is how Mexico will navigate its looming GM ban on corn.
Wrapping It Up
Don’t let the brevity of this list (only 8) leave you resting on your laurels. On the contrary, this list is perhaps the thorniest of all.
We are consistently reminded of two things when writing the year-in-review and looking ahead lists each year. First, there is often a consequential event that was unexpected or completely unforeseeable. The 2020 pandemic and the 2022 Russian invasion of Ukraine are obvious examples. Second, the range of possible outcomes is often way wider than most would anticipate. In other words, it’s one thing to get the correct issues onto the list; it’s another to have the appropriate magnitudes.
Where does this leave us? First, we believe it’s important to think critically about the specific risk your farm or business faces and what small steps you can take to position yourself for the risks, uncertainties, and potential opportunities. Specifically, the Three Risks Exercise is very helpful for prioritizing and gathering feedback.
We wish you all the best in 2023.