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Inflation, input costs, and drought top concerns for agriculture


A quarterly report by the Farm Credit Service on December 8 outlined significant economic issues for ag producers in the last quarter. Inflation, cost of inputs, and droughts remained at the top of the list. Among economic matters, the FCS report also covered the financial condition and performance of the Farm Credit System as of September 30.  

»Related: Farmers hold steady despite interest rates and input costs

Inflation and rising interest rates continue to be major economic issues despite a recent slowdown in inflation. Rising interest rates have caused a downturn in the housing market. Consumers’ reactions to inflation, higher interest rates, and the labor market will be critical drivers for the economy going into next year.

Input costs will be important for farmers in 2023. Volatility in natural gas prices will continue to be passed on to fertilizer prices, though the risk of outright energy shortages in Europe this winter has lessened. Supply chain difficulties persist with agricultural equipment, leading to high costs and long waits for new equipment and replacement parts.

Drought conditions continue in many areas of the country, creating significant challenges, particularly for producers of cattle and wheat and for those in California and the Colorado River Valley. This has led to low water levels in the Mississippi River, which in turn has caused shipping delays and increased prices.

Corn, wheat, and soybean futures prices have retreated from record highs earlier this year. Food commodity prices will continue to be driven by global weather, the war in Ukraine, and global economic growth. Avian influenza has killed a record number of turkeys and chickens and could be a new endemic disease faced by poultry producers.

Through the first nine months of 2022, the Farm Credit Service System reported favorable financial results, including continued loan growth, increased earnings, and robust capital levels despite some decline in the System’s capital-to-asset ratio. Portfolio loan quality remained strong, although producers in specific agricultural sectors and geographic regions face challenging operating conditions. Overall, System institutions are financially sound and well-positioned to meet the credit and liquidity needs of agricultural producers and rural America.

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