It’s hard to predict the future when it comes to the American agricultural economy, and 2022 is no different. David Widmar, an agricultural economist with Agricultural Economic Insights, says there are several concerns in the months ahead.
“The macro-economy, the overall U.S. economy is on everyone’s mind, and how things play out in 2022 could have long-term implications. And I think the important issue is the combination of production expenses and commodity prices. And right now, everything’s tight but probably doable, but if we see one of those slip one way or the other, it could come challenging for producers to navigate here.”
He says inflation is the biggest concern when it comes to the macroeconomy.
“Everyone right now is thinking about inflation – and I think that’s true – we’ve seen data coming out of the Federal Reserve that said that inflation is pretty high. Thankfully, the duration has been pretty short. We haven’t seen inflation lasting very long. Again, a year ago, we were looking at inflation rates in the one to two percent range. And so, this has been a pretty short-term phenomenon. How much pain inflation causes are a function of the magnitude and the duration. We have a magnitude that’s around five, five-and-a-half percent. The duration has been short. Of course, this is a concern, but we have to put it in the right context. Of course, the follow-up is what’s going to happen with inflation?”
The biggest economic question is what the Fed will do with interest rates and the effect it will have on inflation.
“It’s important to think about how this unfolds, and if we see a scenario play out in 2022 where the Fed is raising interest rates, and inflation is still challenging, then that could spell long-term challenges or headwinds for the farm sector. We could see inflation continue to be a concern; we could see the high levels of interest rates continue to be a concern. On the other side, maybe the optimistic side, if we see inflation start to abate or start to slow down as supply chains get restarted, that could be less pressure on the Fed to raise interest rates here in the next year or 18 months.”
As always, policy coming out of Washington, D.C., will be a concern for American agriculture.
“D.C. and the policy priorities the last two years have been focused on COVID and the economy and sort of the recovery from situations we’ve had starting back in 2020 and lingered with us the last two years, but we’ve started to push through that potentially, maybe hopefully, we don’t have as much focus on stimulus efforts coming out of Congress or COVID-relief efforts, and maybe we get ahead of the disease a little bit. So, the question is what will Congress and the White House focus on?”
He says global tensions will also play a part in the agricultural economy during 2022.