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Economist: Farm Economy Strong Heading into ’23

Economist: Farm Economy Strong Heading into ’23

Commodity prices are still holding strong at the end of 2022, even through bouts of volatility. Dave Widmar is an ag economist with Agricultural Economic Insights, who says the ag economy’s strength should continue into next year.

“In general, yes, it’s still a positive story, is still a very favorable story in the farm economy, and we expect that to continue in 2023. And the reason why is one of the main fundamentals is tight inventories in the U.S. across all commodities, but then also globally. And why it’s important to look at this across all commodities is when it’s tight for corn, soybeans, and wheat, we just can’t substitute one crop for the other. All those crops are going to be wanting to maintain their acreage shares, and so, we just can’t borrow, you know, this idea of robbing Peter to pay Paul. We can’t plant fewer corn acres to make up for soybeans or vice versa. So, everything is tight, and that’s going to continue to be part of the narrative into 2023.”

He talks about concerns heading into 2023 and how things might play out.

“In the long run, we know that we will eventually oversupply. We will bring in new acres of production around the world, in South America, in South Asia, India or Russia, and Ukraine, long-term, or we’ll start having really big yields. We’ve had a pretty consistent run of average or slightly below-average U.S. corn yields. So eventually, those two factors, more acres and yields, will push us over. We’ll have stocks rebuild, we’ll have not enough demand for all the supply, and that will push commodity prices lower. And why that’s important for where we are in the cycle is costs of production are high at $5.50 a bushel, and those commodity prices will fall really quickly.”

Knowing for sure what to expect is going to be exceptionally difficult to predict next year.

“The unknown here is when that will happen. It’s kind of like rolling dice. It could happen in 2023, or it could not. Why it’s so hard to predict when that downturn will happen and how quickly it will happen is the weather, its economics, its geopolitics, and even if you can tell me one of those factors gets resolved, all the other factors could offset that. So that’s what makes it so darn difficult.”

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