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Fault lines and fissures in the ag economy: Part 1

Getty Images 10-19-21 volcanoes and fissures.jpg
Sharpen your pencils and develop projected cash flows using spreadsheets with wider assumptions for 2022.

I have noticed quite a few YouTube videos and much discussion lately concerning recent earthquake activity around the globe and volcanoes that are spewing lava in various locations. What are some of the fault lines and fissures in the agriculture economy for 2022 and beyond?

Inflation, inflation, inflation

In my recent travels and webcasts, inflation is top of mind for producers, lenders, and consumers. The potential for margin compression is a real issue for next year's cash flow. The agriculture industry has been experiencing 10 to 30 percent increases in input costs ranging from fertilizer and fuel to feed and cash rents. Unfortunately, there is much uncertainty in commodity prices due to global weather, geopolitical risk, and the status of trade agreements. As a result, working capital and equity may be tested for resilience in 2022.

Where is my government check?

Through various programs, the government bridged the cash flow gaps and, in some cases, was the icing on the cake for producers who experienced some of their most profitable years since 2012. The profit and cash flow cracks due to margin compression are not likely to be filled again by generous government payments. Line-by-line, one must analyze government payments and determine which are non-recurring and which are recurring payments. A plan must be developed this fall for life after government payments.

Oil and energy complex transformation

The movement from fossil fuels to green energy will be ripe for transformation issues. The agriculture industry will probably be one of the first to bear these adjustments. On the revenue side, what will happen to ethanol and those with oil related income? On the input side, where a large number of expenses are tied to fossil fuels, the impact could be spot inflation hikes for fuel, fertilizer, and drying costs. This could result in some major tremors in the agriculture industry.

Sharpen your pencils and develop projected cash flows using spreadsheets with wider assumptions and potential outcomes for 2022 and beyond. In the next column we will discuss some of the other disruptors that could provide a jolt and some potential aftershocks

Source: Dr. 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.

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