Grain and farm supply cooperatives have delivered tremendous value to their customers over the past three years, a period that featured extreme volatility in prices for grain, fertilizer and energy as well as unpredictable economic activity stemming from COVID and the Russia/Ukraine conflict. While grain prices and farmer income should remain favorable during 2023, we believe there is a strong chance that the crop cycle will turn down in 2024 or soon thereafter.
Our reasoning is based on forecasts of improved drought conditions across much of the central U.S.,1 which will help drive more grain production. Should an economic slowdown occur (either in domestically or abroad), it will slow demand for feed and fuel grains, adding further downward pressure on the crop cycle.
Once a downturn is apparent, agriculture cooperatives will then need to come to terms with a variety of other risks that will depress net income. Some of these include rising costs of property insurance, as well as higher borrowing costs to fund necessary capital expenditures for infrastructure to support the U.S. grain industry’s transition from exports to biofuels processing.
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