Feb 11, 2022

See Through the Fog: 4 Economic Forces at Play
The Daily Scoop

By: Sara Schafer

The global economy is facing numerous headwinds and tailwinds. Many of the forces at play will impact your farm.

“Fog is something we’ve been dealing with in all facets of the economy,” says Jackson Takach, chief economist and senior director of strategy, research and analytics at Farmer Mac.

Listen in as Takach visits with AgriTalk Host Chip Flory:

What are the factors on Takach’s radar?

1. Consumer Demand

“For me, it all starts with demand,” he says. “What are consumers demanding and how healthy is the economy in our top trading partners? As much as I never want to say COVID again in my entire life, it’s still hanging around. We have to talk about how it will impact some of the recoveries that we’re seeing in foreign markets.”

2. China’s Economic Growth

After seeing dramatic growth, China’s economy has cooled. What will the near-term future hold?

“It’s not going to be the same sort of recovery that it experienced in 2021,” Takach says. “Most economists are looking at something like a 4% to 5% GDP.”

While that is solid growth, especially during the aftermath of COVID, it is down significantly from the 8%, 9% or 10% GDP China posted just a few years ago.

3. U.S. Inflation and Interest Rates

The all-items consumer price index (CPI) for January was up 7.5% from a year ago, according to the Department of Commerce. In December, the CPI rose 7%. Minus food and energy prices, the core CPI rose 6%, the largest 12-month change since August 1982.

These dramatic jumps in inflation hit the farmgate in several ways, Takach says. Anything related to energy, including fertilizer, is up significantly.

Related, he is watching the forecast for interest rate hikes.

“The market is betting 100% there’s going to be a raise in March,” he says. “The question is how much. Increases to short-term rates will directly add to the cost of operating expenses.”

While most banks have probably locked in or priced their operating loans to farmers for this year, there will likely be upward pressure for next year.

“The good news is there is still some time to do some balance sheet management,” Takach says. “Farmers can maybe fix their interest rate costs and restructure to take advantage of very low interest rates.”

4. Farmland Values
Last year brought record after record in farmland values. Takach says he’s keeping an eye on how higher farmland values impact cash rental rates.

“Typically, we see a sort of snowball into higher rental rates,” he says. “It doesn’t happen right away, but as land values go up, it’s going to drive up the rental rates too. So that’s another step towards those higher input prices.”

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