It’s hard to predict the future, but there are several concerns for the ag economy in the months ahead. The macro-economy is the biggest area of interest, says David Widmar, ag economist with Agricultural Economic Insights. How things play out in 2022 will have implications longer than just this year.
“We’ve seen data coming out of the Federal Reserve that said that inflation is pretty high,” says Widmar. “Thankfully, the duration has been pretty short. A year ago, we were looking at inflation rates in the one to two percent range. How much pain inflation causes are a function of the magnitude and the duration. We have a magnitude that’s around 5, 5.5 percent. Of course, this is a concern, but we have to put it in the right context.”
The biggest economic question is what the Federal Reserve will do with interest rates and the effect it will have on inflation.
“It’s important to think about how this unfolds, and if we see a scenario play out in 2022 where the Fed is raising interest rates, and inflation is still challenging, then that could spell long-term challenges or headwinds for the farm sector,” says Widmar. “We could see inflation continue to be a concern; we could see the high levels of interest rates continue to be a concern.”
Widmar says it’s not all doom and gloom.
“If we see inflation start to abate or start to slow down as supply chains get restarted, that could be less pressure on the Fed to raise interest rates here in the next year or 18 months.”
As always, policy coming out of Washington, D.C., will be a concern for American agriculture.
“D.C. and the policy priorities the last two years have been focused on COVID and the economy and the recovery from situations we’ve had starting back in 2020 and lingered with us the last two years,” says Widmar. “But we’ve started to push through that potentially, maybe hopefully, we don’t have as much focus on stimulus efforts coming out of Congress or COVID-relief efforts, and maybe we get ahead of the disease a little bit.”
He says global tensions will also play a part in the agricultural economy during 2022.
