Economic growth and inflation will slow in the coming months, but commodity prices are likely to be volatile as the world’s farmers try to catch up with the global appetite for food, said two leading agricultural economists on Wednesday. “I think that 2023 still looks pretty strong” for U.S. farm income, said Nathan Kaufman, the Kansas City Federal Reserve Bank’s principal expert on agriculture economics.
Joe Glauber of the IFPRI think tank said that relatively slim global grain inventories as the growing season nears in the Northern Hemisphere would mean continued volatility in commodity prices.
“I think the bottom line here is … price volatility will continue throughout the year, and I think that means prices, while they’re going to be down hopefully from the spikes that we saw last February, they’re still going to remain high, certainly relative to the pre-2020 years,” said Glauber.
Commodity prices, followed by production costs, began to surge in 2020 with the arrival of the pandemic, remained strong in 2021 as the world economy recovered, and soared following the Russian invasion of Ukraine. High global demand for food, limited supplies of agricultural products, and high prices for fuel, fertilizer, and other agricultural inputs are major elements of the agricultural outlook for this year, too.
Slower economic growth will constrain inflation this year, said Kaufman and Glauber in remarks online to the North American Agricultural Journalists. “It’s still likely we are going to see some price pressures persist,” Kaufman said.
“We’re starting in a hole” on world grain production because of small stockpiles and warfare in Ukraine that will limit exports of wheat and sunflower oil, said Glauber. In their first chance to respond to the war, U.S. wheat growers planted 11 percent more land to winter wheat for harvest this year than in 2022. “We still have a lot of dryness out there,” said Glauber, referring to drought in the Plains. “Clearly, the question is, can we see the United States producing a little more wheat?”
Looking to 2024, Kaufman said the chances of lower farm income were “perhaps a bit more substantial” than this year. “Commodity prices are still strong, and we are coming off of a time when finances are still strong,” he said.
Net farm income, a USDA gauge of profitability, was at record-high levels in 2021 and 2022.
Based on a nationwide survey of ag bankers, “the outlook for farm finances remained favorable alongside elevated commodity prices” at the end of 2022, said two Kansas City Fed economists in a quarterly Ag Finance Update. “But increased interest rates, challenging weather conditions, and high production costs remained key concerns.”