For 2022, the Purdue Agricultural Economics Report released on Jan. 13 cited inflation and COVID-19 uncertainty as key issues impacting food prices, general economy performance, farm costs and returns, farm financials and household economics.
Specifically, how do the agricultural economists see 2022 shaping up for farm equipment dealers? To find answers, www.Farm-Equipment.com shares some of the highlights of the 9 sections included in the report.
“The outlook for the general economy depends on the course of the COVID pandemic,” reports Agricultural Economics Professor Emeritus Larry DeBoer, who spells out several scenarios in his report section entitled, “General Economic Outlook – COVID Calls The Shots Again.”
“Needless to say, the pandemic creates more than usual uncertainty about the general economic forecast,” DeBoer says, predicting:
- Real GDP to grow more slowly, at 3.5% to 4%.
- 12-month inflation rates will register above 7%, but lower federal fiscal stimulus, monetary tightening, lower oil prices and improving supply conditions should reduce inflation to 4.5%.
- Federal Reserve tightening should add three-quarters of a point to the long- and short-term Treasury bond yields. That would make the 10-year Treasury yield about 2.3% and the 3-month yield 0.8% by the end of 2022.
Yet farm equipment dealers continue searching for employees and DeBoer expects the unemployment rate to hover around 3.7% by this time next year.
“The shortage of labor is also a source of inflationary pressure. The Bureau of Labor Statistics measured 11 million job openings but only 7.4 million people seeking work in October,” DeBoer notes. “A reason for this shortfall is the extraordinary decline in labor force participation.”
More than half of the missing workers are over age 54, people most vulnerable to COVID. Early retirements are also a large part of the participation decline, he notes.
For her section — The Impact Of COVID-19 On Households: Lessons For 2022? — Maria I. Marshall, Professor, Jim and Lois Ackerman Endowed Chair in Agricultural Economics, says the number of retirees increased 29% since the pandemic.
However, Marshall notes the exit of women in the workforce, largely due to childcare concerns, is exacerbating labor shortages.
Citing McKinsey and Company, Marshall predicts post-pandemic job growth will occur in high-wage jobs and most low-wage workers who lost jobs may have to retool and shift occupations. “We may continue to see an increase in the number of workers that shift to not only higher paying job, but also to jobs with guaranteed benefits.”
In addition to labor, farm equipment dealers and their customers continue to grapple with supply chain issues.
“Trade and trade policy outlook, 2022” by Russell Hillberry, Professor of Agricultural Economics, says surging demand is the primary reason for supply chain difficulties, trade policy has been a contributing factor.
“The tariffs imposed by President Trump make imports more expensive and limit the availability of some goods altogether. While President Biden has taken some administrative actions to relieve supply chain difficulties, an important step that he has not taken is broad-based removal of these tariffs,” Hillberry notes.
He adds that lower tariffs would reduce the price of imported goods. “Lower tariffs might also generate new supply routes for imports, routes that would avoid the congested Southern California ports.”
Hillberry summarizes, “The international trading system is critically important for producers of export-oriented agricultural products. President Trump’s trade policy actions gravely undermined this system. One key question that was unresolved last year is what actions President Biden would take in the wake of the chaos President Trump left him. By now, it seems clear that trade policy is not a key priority of the Biden administration, but that several other Biden Administration priorities affect, and are affected by, international trade. Some progress has been made with respect to restoring normal trade relations with Europe. But President Biden, like President Trump, appears ready to use unilateral trade policy, albeit with different goals. Unilateral trade policy has domestic political appeal, but it risks undermining the international system that rewards U.S, agriculture so handsomely. Unilateral policies pursued over the last five years have also contributed to the current difficulties with the supply chain.”
Brady Brewer, Assistant Professor of Agricultural Economics, and Todd Kuethe, Associate Professor, Schrader Endowed Chair in Farmland Economics, provide the section, “2022 Agricultural Credit Outlook.”
The agricultural credit market is riding several positive trends, namely farmer optimism over interest rates remaining at or near all-time lows, supporting the acquisition of new capital assets; and banks having sufficient funds to loan if farmer demand increases.
“However, there are some negatives at the moment as bankers are reporting higher rates of non-payment from farmers. This would indicate that the liquidity positions of farmers may be deteriorating as they have less cash on hand to pay off current debts,” they report.
Read in-depth all the sections of The Purdue Agricultural Economics Report here.