The Federal Reserve will continue to raise interest rates into 2023, “and the outlook for the coming year grows increasingly gloomy,” said agricultural lender CoBank on Monday. The strong dollar “will pressure U.S. exports as the global economy struggles and U.S. goods remain expensive,” it said, with warfare in Ukraine injecting additional volatility into world food supplies.
Exports are a major element in U.S. farm income.
“Risks and uncertainty remain exceptionally high, but elevated commodity prices also offer opportunities,” said CoBank in a quarterly report on the agricultural sector. “And all of this is happening with mid-term elections just weeks away and congressional control up for grab. It will not be a quiet end to the year.”
The fight to quell the high U.S. inflation rate — 8.2 percent at latest count — is unlikely to end without “at least a mild recession,” said Dan Kowalski, vice president of CoBank’s Knowledge Exchange. The Fed began raising interest rates seven months ago but there are only a few signs of it slowing consumer demand. “And as rates continue to go higher in coming months, our view of the collateral damage coming in the first half of 2023 mounts.”
At the same time the Fed tries to slow the economy, the agri-food and energy sectors have gained unexpected levels of pricing power, said CoBank. Drought in Europe and North America this summer tightened grains supplies. Low water on the Mississippi River has interfered with U.S. grain exports. Russia has warned repeatedly it will not renew the Ukraine grain export deal that expires in November.
“Grain price remained volatile, caught between falling energy prices, a surging U.S. dollar, a weakening global economic outlook, ongoing drought and rising tensions in the Black Sea region,” said the report.
Consumer were remarkably willing to pay high prices for meat and poultry, as they have been since the start of the pandemic — a reason for optimism in the meat industry, said CoBank. “At this point, nothing really sticks out as a major warning that consumer desire for animal protein is waning, rather retailers are shifting their focus to ‘value’ items, such as ground beef, chicken breasts and pork chops.”
CoBank’s report, The Quarterly, is available here.