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Inflation, other factors, will create hurdles for farmers in 2022

Mike Dierks CMYK.jpg
Mike Dierks

WORTHINGTON — Farmers are facing some known hurdles as spring approaches for the new planting year.

First on the list is increased fuel and fertilizer prices. Diesel, gas and ethanol prices have skyrocketed for several reasons. A shortage of supplies due to weather and storms, politics here and abroad, plus OPEC nations monitoring their output have all combined and created much higher fuel prices.

Farmers use fuel to gather inputs, produce commodities, haul and store their products. Fertilizers are also made with fuel, and those prices have risen to the highest levels ever seen for this area.

The second hurdle is known to all of us as supply chain disruptions. Producers and their suppliers are on the scramble to find the genetic seeds and chemicals to match their fields for next year’s crop production plans. Some folks are being told they may not get all their chemical needs met to match the seed they want to purchase for next year. They have been put on a waiting list with no guarantee of delivery or a set price determined at this point.

I know producers last fall that had to drive to Kansas and Missouri to get the parts they needed for their combines. These are new supply problems producers have not had before.

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The third jump came when the Federal Reserve announced last month that interest rates would increase at least three times in the next year. Interest rates have been very low, but a rise in interest rates will affect farm profits as most producers borrow money during the growing season.

The fourth hurdle will be inflation. Inflation was explained to me this way in economics class in college: Inflation occurs when grandma’s $100,000 two-year certificate of deposit at the bank can only buy $80,000 worth of goods when it matures. In other words, there is an increase in prices of goods and services in an economy and each unit of currency buys fewer goods and services.

Farm equipment has been increasing in value. Rents are increasing, repairs are up, fuel is up, fertilizer and chemicals are up. Our government officials keep telling us inflation is temporary due to COVID, but my common sense says maybe not. There are not enough people to hire, so wages have increased everywhere. I don’t think workers plan to take a pay cut in the future to slow our inflation rates.

We have a national trucker shortage as well. This also raises the cost of any goods moved by trucks. If wages can’t go down, and goods have to be hauled over the road, it makes sense our cost of goods will not be going down.

Our economy cannot stabilize or deflate in this atmosphere. For farmers, this means they will be paying more money for their inputs and taking a larger risk to try and make a profit.

The fifth and final hurdle we clearly see today is the United States has not established a solid trade agreement or calmed the world unrest. America is one of the biggest agriculture and democratic countries in the world. We need to have trade agreements both for selling and buying American goods to have a robust economy. Not trading American goods, including agriculture, has a direct impact on our economy.

COVID not only has slowed our trade agreements, but It appears to have permitted the aggressive communist countries to also start some scuttles on borders. China is trying to create a way for the world to approve a takeover of Taiwan. Russia mirrors that same approach with Ukraine.

Both of these powerful countries appear to be in need of more land for food. Either conflict would disrupt our already broken trade agreements worldwide and harm world economies including ours. It is also ironic that most cyber-attacks are also mentioned as originating from these countries. Several large elevators in our area had cyber-attacks last fall that disrupted local business patterns for our producers.

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Any of these macroeconomic obstacles could easily disrupt our trade and loom as a serious issue for local farms.

How does a farm producer get over those hurdles and stay practical and proactive in this unpredictable economy?

First, communication is always important when you run a business. All business partners

should agree on their annual cash flow plan and their new goals for the new year. Stakeholders in each farm — including lenders, insurance agents, agronomist, feed dealers and advisors — should all be informed of the expectations for the new year.

Producers need to develop and implement a profitable marketing plan that assists in softening the commodity market price risk that farmers always face. Lock in some good fall prices while you are paying for these extremely high spring input costs.

Farmers can be challenged by Mother Nature, so it is also imperative to insure those crops for as much profit potential as possible. Buy fuel needs on price dips if they occur. Buy the parts you usually need in advance for your machinery, because supply chain disruptions are going to be around for a while.

Finally, expect to pivot your plans during the year. Supply disruptions, inflation, fuel prices and Mother Nature are not predictable and will cause this year’s plans to swivel.

I appreciate all the farmers running the race to provide us with the safest, most abundant supply of food in the world. The risk they take to feed America is large this year. Thank you producers!

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