Hopes for docile agriculture markets in 2022 have already been blown out of the water. Instead, we could be headed for a volatile year – or more – in both ag commodities and energy. Keep an eye on these issues.
1. Investor Interest
Investors are flooding back into commodities, as they did in the past price boom. Both managed funds and index funds are at their highest levels in eight years.
2. Cybersecurity Issues
Stephen Nicholson, global analyst for grains and oilseeds at Rabobank, is concerned about cybersecurity issues if tensions escalate with Russia.
“It would not be the first time Russia has hacked computers in the U.S.,” he points out. “What if they were to target companies in the ag space - agriculture networks such as John Deere or Climate - ahead of spring row-crop planting? Farmers may be able to get field work done the old-fashioned way, but it would certainly cause disruptions.”
3. Interest Rates
The general economy and the Federal Reserve’s responses, including interest rates, also shake confidence in the future.
4. Weather
Of course, weather is the biggest yield factor, and it has become more capricious, says Samuel Taylor, ag input analyst at Rabobank.
“It has the power to blow out of the water any input-driven impact,” he says.
5. Fertilizer Factors
A global concern spawned by higher input prices is a widening divide between farmers in countries that have the ability to acquire the necessary agronomic and financial needs in stark contrast to those without access (emerging markets). For instance, fertilizer demand in sub-Saharan Africa could fall 30% this year, according to the International Fertilizer Development Center, which could cause a loss in food production equal to the needs of 100 million people.
6. Pandemic Responses
And China’s no-COVID policy poses risks to trade and the global economy if it worsens the supply chain either by closing production facilities in China or closing its borders for trade in a drive to keep COVID out. One example is agrochemicals, for which China is flying active ingredients into the U.S. market to ensure production in time for the 2022 season.
“The closure could happen overnight but could take a year or more to be felt,” Taylor says.
Regarding the pandemic, Lin Tan, executive president of Hopefull Group, based in Iowa, adds: “The country is still in a sunny condition. Cities are locked down. There is danger when the world reopens.”
