The economic books are being closed on the year 2018. With each passing day, we are inching closer to a new decade. Let's examine some of the elements that have shaped the landscape this year.

The agriculture industry is now in the sixth year of the economic reset, otherwise known as the “grinder.” Contrasted to the 1980s farm crisis, which was characterized by abrupt changes in income and land values, this cycle is elongated. The economic conditions are playing havoc on the financial and emotional well-being of those involved in the agriculture industry.

Some segments of the industry are facing more difficult adjustments. For example, the dairy industry is in its fourth year of suppressed profits that have led to losses in equity and producers exiting the industry. The poultry and hog complex exhibited expansion of production which has increased inventories, or what some call the “Great Wall of Protein.” International trade agreements and strong domestic demand will both be important moving forward. The beef industry has been the bright spot with an actual increase in demand after years of decline but is also showing signs of softening. Moving to the grain and crop sector, those that had good weather and a sound marketing plan generated a positive bottom line, but not robust profit. The health of the U.S. economy, the status of trade agreements, and the strength of the dollar will be the keys to success.

In all sectors, 2018 will be earmarked as a year in which the intensity and negotiation of tariffs, trade agreements, and sanctions impacted both the short and long-run future of the industry. With one in five dollars generated through international trade, the question becomes whether the trust of major U.S. export partners has been violated. Will it be a barrier to trade? The other factor to consider is whether U.S. trading partners have found sustainable substitute markets for their agricultural products.

The “rock” of agriculture has been farm real estate values. According to the latest USDA ERS figures, this long-term asset comprises 83 percent of the farm balance sheet or approximately $2.8 trillion of the $3.5 trillion U.S. farm balance sheet. The resiliency of this asset has allowed producers to refinance or restructure operating losses to longer-term debt. Lenders have indicated that some producers have refinanced or restructured losses three to four times in the past six years. Will this strategy continue in the next few years, particularly if regulators require lenders to tighten credit standards?

The year 2019 will be one in which interest rate creep will start to impact profit margins. As the Federal Reserve continues to boost interest rates, operating debt is the most vulnerable because it is often tied to a variable rate. Higher interest rates will increase the overall cost of production.

Returning to the general economy, the U.S. economic expansion is moving closer to record territory. The second-longest economic expansion was 106 months in the 1980s. The U.S. economy has surpassed this record with 113 months of continuous expansion. How much longer will it last?

While China, Japan, European, and other global economies are slowing, the U.S. economy seems to have picked up momentum. For the first 80 months of the economic expansion, a one to two percent annual growth rate was often the result. With the tax and regulatory relief, those growth rates have sustained around three percent.

This growth is both good and bad news for agriculture. Yes, the demand for agriculture products has increased and, in some cases, is growing. However, the strong economy and increases in interest rates have resulted in a strong dollar, which has hindered export potential in the agriculture and energy-related fields.

However, one must acknowledge that consumer confidence based on growth in real estate values and in the stock market has had an impact through the wealth effect. The wealth effect is when people are more likely to increase consumption when they feel wealthier. Recent declines in the S&P 500 and the Dow Jones indices, and the slowing growth of real estate values, particularly in the Los Angeles and San Francisco areas, may be trends to observe into 2019.

This article closes down another year. My team would like to wish you all the best for the holidays. Remember, take time to reflect and turn off the technology. Also, be supportive of those who are less fortunate and going through difficult times.