Supply continues to affect the farm economy |  AG

Supply continues to affect the farm economy | AG

Editor’s Note: The following was written by Gary Schnitke and Nick Paulson of the University of Illinois Department of Agricultural and Consumer Economics. This is a summary of a presentation from the 2021 Illinois Agricultural Economics Summit (IFES).

Since the negative economic effects of the pandemic peaked in 2020, broad economic indicators suggest that the US economy has recovered and is showing signs of healthy growth in 2021.

US GDP has returned to levels of the pre-pandemic trend, and the unemployment rate has again fallen below 5% – higher than in the years leading up to the pandemic but low by historical standards.

However, economic headwinds remain. While the unemployment rate has fallen, the size of the workforce has not yet returned to pre-pandemic levels. It is possible that the pandemic has resulted in older Americans choosing to leave the workforce earlier than others, and younger Americans being more reluctant to enter or return to work.

The demographics of the US population indicate that there is a relatively persistent labor shortage with the number of out-of-work workers outstripping those who will replace them for the foreseeable future.

At more than 6% at the end of 2021, inflation had risen to levels not seen in more than four decades. While market indicators suggest that inflation is expected to return to lower levels, averaging 2.5% over the next decade, the key question is when and how growth in the costs of goods and services will decline, and most importantly, whether wage growth can keep pace. Pace with inflation.

Much like the general economy, Midwest farmers have been experiencing higher farm incomes over the past couple of years, but they also face higher production costs.

For 2021, farmers registered with the Illinois Business Farm Management Association (FBFM) are expected to face record levels of farm income thanks to higher commodity prices and the continuing effects of government payments linked to the pandemic.

Although input costs are rising rapidly, the yield outlook for 2022 is positive with commodity prices at current levels. However, even moderate declines in prices can lead to negative returns for the coming year.

While input costs have risen across all major categories, nitrogen fertilizers have received the most attention with costs reaching record levels at the end of 2021. While the simple pricing model for anhydrous ammonia indicates that there is a significant risk premium currently embedded in prices, it is unclear what If this premium is to be reduced by the 2022 planting season. Producers are encouraged to consider a range of strategies for their 2022 crop fertility plans.

In general, producers are advised to reduce the rates of nitrogen fertilizers to get acquainted with the increased cost. For example, the rate of application of the maximum return to nitrogen (MRTN) at current prices would be about 20 lbs. of nitrogen per acre is lower than historically low prices.

Producers are also advised to consider separate application strategies so that overall application rates can be adjusted more flexibly to price changes between now and the growing season.

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