Risks and Opportunities in the 2023 Farm Outlook
As the global economy continues to struggle to stabilize after the supply chain upheaval from the pandemic and the Russian invasion of Ukraine, farmers across the US are hoping for signs of a predictable 2023. And while there are many promising signs of stabilization, many obstacles and potential threats remain.
So we've created a high-level overview of some of the top opportunities and risks for the farming industry in 2023. Then you'll be able to develop a plan for further action confidently.
Impact of Fuel Costs
The USDA estimated an almost 19% increase in farm input costs between 2021 and 2022, with fuel being a top contender. As farms depend on gas for day-to-day operations and sale/shipping costs, fuel is a significant concern for farmers.
And while prices have lowered in the last few months, they aren't clear yet. So a proactive management strategy includes keeping a close watch on oil supplies, legislation impacting new oil and gas prices, and watching for ways to reduce reliance on gas-powered machinery where possible.
Strengthening USD Decreases International Export Advantages
While the international markets are still struggling to recover from the pandemic disruption, the US has been a relatively competitive provider. However, the recent rate hikes have significantly strengthened the purchasing power of the US dollar, moving away from the average purchasing power of other currencies.
While a strengthened USD is generally favorable, it does decrease the competitive advantage for international commerce. Farmers specializing in international shipments may have reduced sales as US goods become relatively more expensive for other countries.
Geopolitical Toll on Feed Costs
The Russian/Ukrainian war has led to a projected 50% decrease in global wheat supplies and a 75% decrease in Ukrainian corn. While this increases the demand for corn and wheat suppliers to raise prices, there is a significant negative impact on those with livestock.
As wheat and corn continue to be scarce in 2023, expect the cost of animal feed to remain high or increase. The increased feed cost was a top input cost contender alongside gas last year.
Interest Rates and Inflation Impact on Cash Flow
Finally, farmers are feeling a tight strain on their cash flow, which will unlikely be relieved soon. As interest rates rise to combat historic inflation rates, farmers have more difficulty taking out loans and leveraging assets into working cash. In the meantime, inflation rates have heavily increased input costs while straining sales.
Farmers should look at their current and projected cash flow and consider creative options to relieve financial pressure. For example, consider taking loans, shifting production methods, or leasing land access or equipment.
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References: https://thedocs.worldbank.org/en/doc/40ebbf38f5a6b68bfc11e5273e1405d4-0090012022/related/Food-Security-Update-LXXX-March-09-2023.pdf https://agamerica.com/blog/business-tips-for-farmers-in-2023/ https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/farming-and-farm-income/