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The Quarterly - April 2024

Sticky Inflation Puts Fed on the Horns of a Dilemma

Inflation is proving to be more difficult to quash than expected, but the Fed doesn’t want to crash land the economy after avoiding a recession for this long. 

As we pointed out in our Year Ahead report in December, expectations that the Fed would cut rates six or seven times were completely irrational. The market has belatedly come around to our earlier view. But while many now completely dismiss the chance of an economic slowdown, we believe the Fed still has concerns. That’s why Chairman Jerome Powell reiterated his belief that three rate cuts were still warranted in 2024.

In this Issue:

• After nearly 80 years of fighting for freer global trade, the U.S. has moved to a more insular stance – which will hurt U.S. agriculture.
• Congress is wrapping up its least-productive session in history and still needs to take action on the farm bill.
• Plentiful grain stocks and a strong dollar continue to weigh on grain markets.

The Quarterly - October 2023

“Higher for Longer” a Drag on Rural Economy 

The Fed’s battle against inflation amid a resilient U.S.  economy has led to the highest interest rate environment  since 2007 along with a surging U.S. dollar. That is hurting key segments of the rural economy. 

The Fed’s relentless 20-month attack on inflation has pushed long-term interest rates to their highest levels in years. The combination of high interest rates and a healthier than expected U.S. economy has kept the dollar much stronger than anyone would have expected. The one-two punch of high borrowing costs and the strong dollar, which hurts our export competitiveness, have combined to take a disproportionate toll on rural industries like agriculture, forest products, mining, and manufacturing. 

In this Issue:

• “Higher for longer” boosts dollar, hits U.S. export prospects
• Farm bill negotiations take a back seat in Congress
• Oil price surge to continue through 2024

The Quarterly - July 2023

The Slowdown-Resistant Economy: Consumers defy policies intended to slow spending

Despite predictions for a slowdown, the U.S. economy remains the envy of the world. Jobs are plentiful, asset values are near all-time highs, and consumers are spending. Things are good. But inflation is still well above the Fed’s target, and persistent monetary tightening is likely to usher in a mild recession by year-end or early in 2024. Some of the highest inflation rates have been in the grocery store and at restaurants, and that is now triggering consumer pushback. In contrast, energy prices are down considerably, limiting the pain felt at the gas pump and with monthly cooling bills amid sweltering summer heat.

• Midwest drought looms over U.S. grain and oilseed production
• Farm labor update: Immigration rebounds, but farm wages soar
• The good news about gas and groceries

The Quarterly - January 2023

Inflation is Beginning to Loosen its Grip - The Fed rate hike cycle will soon end, but commodity market supplies remain vulnerable.

The war in Ukraine and inflation will remain the two biggest factors for commodity markets in the first half of 2023. There are now consistent signals that inflation 
is softening, which should enable the Federal Reserve to comfortably relent on interest rate hikes before mid-year. However, the opening of the Chinese economy could complicate the inflation picture as increased demand for oil and gas in China threatens to upset the delicate global energy supply and demand balance.

• The costs of China’s COVID policy reversal
• OJ prices near record highs on historically small Florida orange crop
• U.S. faces another season of sky-high energy costs

The Quarterly - July 2022

Clouds Are Forming - Fears of higher rates and weakening economic conditions linger over the year's second half.

Effects from the pandemic and Ukraine war continue to reverberate through the global economy. Food and energy prices remain high, though prices for underlying commodities have lost upward momentum as economic fears rise. The Federal Reserve is poised to raise rates until it believes inflation has been tamed. Unfortunately, the risk of over- or under-doing it is high given that the lag time between action and reaction in monetary policy can be long. 

Topics in this Issue

• Architecting an Economic Slowdown
• Market Volatility Whips Grain Prices
• Electricity Consumers Should Brace for Big Summer Bill

The Quarterly - April 2022

Russia’s attack on Ukraine will have long-lasting implications for U.S. rural industries

The Russian invasion of Ukraine has brought on a new set of economic conditions that are reshaping financial and commodity markets. For the remainder of 2022, global growth will be slower and most commodity prices higher than previously expected. Key agricultural inputs are in short supply and energy prices are near multi-year highs despite the biggest ever release from the U.S. strategic petroleum reserves. 

Topics in this Issue:

• Russia Cannot Unwind Globalization
• Natural Gas Prices May Cut Into Ethanol Margins
• Escalating Feed Costs Stifle Growth Trend Despite Stronger Prices

The Quarterly - January 2022

Omicron Upends Supply Chain Recovery

With cases surging and workers out sick, rural industries are scrambling to minimize disruption.

Against all hope for a better start to 2022, omicron has crashed the New Year’s party. Renewed supply chain disruptions are being felt throughout the economy, causing empty shelves again and threatening to fan the flames of inflation. Effects from the omicron variant should be short-lived relative to delta, but it will be several more weeks before the impact of sick workers passes. 

Topics in this Issue: 

• Fed Monetary Policy Replaces COVID as Economic Wild Card
• Back to $6 Corn and $13 Beans
• Fuel Volatility Returns in an Age of Renewables

Third Quarter 2021

Adapting to Persistent Supply Disruptions

Entering the final quarter of 2021, the U.S. economy and rural industries seem to be transitioning into yet another phase of the COVID pandemic. As the delta variant surge subsides, and the economic recovery continues at a healthy pace, businesses of all sizes and across most industries are wrestling with perhaps the worst supply chain bottlenecks to date. Supply chain disruptions and labor shortages are adding significant costs to business operations, and consumers will feel these effects through higher prices for months to come. 

Topics in this Issue:

• Is a Fourth Strong Agronomy Season on the Horizon?
• Worsening California Drought Crimps Harvest of Tree Nuts and Wine Grapes
• The Cost of Self-Sufficiency and a Rising Natural Gas Floor