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Third quarter mark in farm business

Start looking at 2024, are you ready to weather an economic storm?

David Kohl, Contributing Writer, Corn+Soybean Digest

October 4, 2023

2 Min Read
What's ahead for the world, farm and United States economies?Streetoncamara/Getty Images

It is hard to believe how fast 2023 is progressing and that we are already at the end of the third quarter. My extensive travel and engagement with producers, lenders, and agribusinesses at all levels provides me a unique perspective on the economy. Let's discuss some of my observations.

The Federal Reserve may increase interest rates another 25 basis points this fall in their attempt to maintain core inflation at two percent. Core inflation excludes food and energy prices. Housing and medical costs make up a sizable proportion of core inflation and both sectors are experiencing shortages, high costs, and labor issues. The Fed will likely err on the conservative side because they do not want inflation rates to increase again.

Producers who have cash earnings are faced with several options. Do they purchase land (if available), build liquidity and working capital, or invest in alternative assets such as certificates of deposit (CDs) or money market accounts? Many proactive producers are maintaining “dry powder" in their finances so that they can be ready to pounce on opportunities.

Agricultural lenders have indicated that they are observing increasing family living costs, credit card debt, and accounts payable balances. Family living costs often are drawn on operating lines of credit. A family living budget separate from the farm budget is essential to gauge the level of family living costs.

Farm business transition challenges have been observed in audiences over the past six months. As the older generation requires increased medical care, this is creating a liquidity crunch. Sixty percent of lifetime healthcare costs occur in the last six months of life. Those who are not insured or lacking long-term healthcare policies are in the vortex, particularly if they do not have a plan.

Looking at the global economy, China's economy continues to struggle as a result of demographics, debt, and a loss of export markets, particularly in manufacturing and technology. This could be a challenge to agriculture export markets here in the United States carrying over into 2024.

The economies of Europe, which make up 20 percent of the world economy, are struggling due to the loss of export markets to China as well. On the cost side, high energy costs as a result of the green energy movement and depending on Russia for fuel are headwinds in Europe.

The U.S. economy has dodged the “recession bullet” so far. However, higher unemployment, increasing credit card debt, and dwindling reserves of saved government stimulus checks will possibly create some challenges in 2024.

In summary, those who are prudent with both their business and household finances will be in a position to weather any economic storm.

About the Author(s)

David Kohl

Contributing Writer, Corn+Soybean Digest

Dr. Dave Kohl is an academic Hall of Famer in the College of Agriculture at Virginia Tech, Blacksburg, Va. Dr. Kohl has keen insight into the agriculture industry gained through extensive travel, research, and involvement in ag businesses. He has traveled over 10 million miles; conducted more than 7,000 presentations; and published more than 2,500 articles in his career. Dr. Kohl’s wisdom and engagement with all levels of the industry provide a unique perspective into future trends.

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