“Farmers Concerns Heading into 2023”

Farmers have always relied on good weather at the right times for decent crop yields. They are subject to fluctuating input costs, uncertainty on exit prices from normal supply/demand issues and distribution channel risks. 

The past few years have brought them a few other risks: 

• Intense weather effects – yield variability is extremely correlated to extreme weather events. The past few years have seen a higher number of extreme weather events: droughts, higher overall temperature, and flooding. 

Source: Kansas City Fed

• Distribution and Supply Chain issues. Disruption during the Covid years, current lower river levels and the Ukrainian war have completely changed certain supply chains. Some of these issues are short term but others could be longer term in nature.

• The interest rate environment: I don’t think that farmers are/were prepared for the rapid increase in the rate on both variable and fixed loans they are paying. This is going to at a minimum depress their margins and, in some cases, (like cattle) force the early sale of farming assets.

Farmers will extend the life of their machines because it costs too much to buy new ones – this will have a follow-on effect to the earnings of the agricultural machinery manufacturers.

Source: Kansas City Fed