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Best of NAMA 2023

By Brent Gloy and David Widmar, Ag Economic Insights

The new year is a great time for reflection and planning. Each year we challenge ourselves by reviewing the previous year's top stories and pondering the biggest uncertainties, unknowns, and questions that the new year might have in store. There are many benefits of doing this, but we find it helps us think more clearly about the unknowns (see the 2021 list), but it's also a humbling reminder that it's impossible to anticipate the biggest unknowns for even a year (see the 2020 list). With that, we present what we think are currently the biggest issues and questions facing agriculture in 2022, in no particular order.

1) Production Expenses
While fertilizer has captured the majority of attention- more than doubling from the decade lows of Fall 2020 - the price of nearly every agricultural input has turned higher. The combination of supply chain challenges, general inflation in the economy, and strong profits and commodity prices has created bidding-up behavior across the board.

The same is likely true for fixed expenses, such as machinery expenses, family living, and labor. These costs will also be higher for producers in 2022; it will just take time to fully capture the impact.

Finally, higher production costs are problematic, but conditions are also rapidly changing. We observed fertilizer expenses jump nearly $100 per acre in a matter of months this Fall. Our observation is that decision-makers are really challenged in rapidly changing environments. Will the upward charge in prices- and volatility- abate in 2022?

2) Farmland Markets
Last January, we opened an Ag Forecast Network (AFN) question about the probability of farmland values increased by more than 10% per Purdue's summer survey. At the time, we admitted that this seemed like a very large annual increase, but it turned out to be on the low end of the spectrum. Purdue's June results were 14% higher, and more recent data from Iowa (+29% per December data) suggest the enthusiasm has continued.

Farmland is a topic we closely monitor and frequently write about. While higher farmland values are something most producers can get excited about, a significant fundamental improvement in the farmland market- farm profitability -cash rental rates will likely be pushed higher in 2022.

3) Another Year of Strong Farm Incomes?
The combination of a relatively low cost structure and high commodity price set the stage for a very profitable 2021. In fact, 2021 will be remembered as one of the most profitable years for corn and soybean producers.

Like going to bat immediately following a grand slam in a baseball game, it's going to be very difficult to repeat the financial performance of 2022 given the soaring cost structure. However, even with higher costs, early looks at 2022 show the prospects of positive economic returns and conditions much improved than the 2016-early 2020 conditions.

At present, we believe "cautiously optimistic" best summarized the 2022 outlook. With most of the costs already written in pen (or nearly so), the biggest determinant of whether 2022 is a good year will likely be whether commodity prices hold or exceed current levels.

To view the complete report, click here.

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