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2 Questions for North American farm businesses

A theme for 2023 will be the term “just enough” rather than just-in-time inventory management.

David Kohl

July 13, 2022

3 Min Read
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A senior writer from London, England, wanted my take on some issues concerning North American agriculture. The following are my answers to some of the questions folks from the other side of the pond think are important.

What will be the most important issues in agriculture over the next one to three years?

Whether it is North American or global agriculture, inflation, interest rates, and margin management will be front and center in a constantly changing geopolitical environment. While commodity prices for some enterprises are at high levels, the increasing input costs are squeezing margins. It will be a tall order to maintain a fine balance between a disciplined marketing approach and changing cost of production which requires constant objective, rather than emotional, analysis.

Some producers in the livestock sector have not been the beneficiaries of high prices. In these situations, increasing input costs are resulting in the need to minimize losses with the goal to breakeven at best. In the last two years, government payments came to the rescue. For some businesses, a large portion of the net margin was the result of a government check. Moving forward, the sustainability of these programs will be questionable.

A theme for 2023 and beyond will be the term “just enough” rather than just-in-time inventory management. Whether it is inputs, parts, or equipment, plans A, B, C, and D and the cost of each scenario need to be examined. Supply chain disruptions and the consolidation of the agriculture industry will lead to fewer choices and will continue to be a challenge for the industry.

Related:Kansas Governor’s Summit on Agricultural Growth returns Aug. 18

What is on the horizon for agricultural trade?

Geopolitics, as it relates to agriculture trade, will be a high priority watch item. With one in five dollars of net farm income in the United States being derived from export markets, and much higher for some commodities, the economic fortunes of farm businesses will rest on these negotiations. The Indo-Pacific Economic Framework for Prosperity (IPEF) was the Biden administration's attempt to develop “middle of the road” trade alliances. This agreement is a counter to China's leadership in the Regional Comprehensive Economic Partnership Agreement (RCEP) and China joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). With 60 percent of the world’s population and 40 percent of the world's GDP, the Asian region will be a battleground for agriculture trade negotiations.

Food and energy nationalism will be an accelerating issue this fall and winter. Countries and regions of the world will prioritize meeting their own needs to maintain economic, social, and political order. These actions will impact prices and cost of inputs.

Related:Development takes toll on farmland

The bottom line is that agriculture is now “back to the future,” resembling the late 1970s and early 1980s economic environment. This environment can be quite positive for the top-flight managers, but challenging for the reactive, emotional managers.

Source: David Kohlwhich is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. 

About the Author(s)

David Kohl

Contributing Writer, Corn+Soybean Digest

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