Four focus for 2023 | successful farming

Concluding 2022 and heading into 2023, the global conversation continues on the subject of inflation and various measures to combat it. High commodity prices and strong demand continue globally despite the best efforts of political and economic minds. In my view, the reality is that commodity prices could likely remain firm through 2023 because the main underlying problem has yet to be resolved: weak supplies. Low global grain supplies and low global energy supplies.

War in Russia and Ukraine and an uncooperative Mother Nature have kept commodity prices firm and close to historically high levels. It will take a perfect bountiful harvest in South America in the coming months and perfect weather for the entire Northern Hemisphere next summer to legitimately allow for a major correction in commodity prices in grain markets.

In the energy sector, a quick fix would be to allow the United States to produce more oil as we did just a few years ago. But alas, this administration has other plans. OPEC has the ability to produce more oil, and while Russia has the ability to produce energy, many countries around the world are not buying it because of the war. So here we are, the price decline continues and will likely last through 2023 until something finally gives way.

What will it give? What should you watch? I am focusing for 2023 on four things:

  1. Fight inflation

  2. China emerges from COVID

  3. Crude oil

  4. Mother Nature

Fight inflation

The fight against inflation will continue for much of the new year. There is no miracle solution.

In the United States, the latest information from the Labor Department indicates that the US economy recently added 263,000 jobs, while the unemployment rate remained at 3.7%, still near a 53-year low. .

Baby boomers have retired and are not accepting part-time jobs. Therefore, without enough people available to fill the jobs, companies must offer higher wages to attract and retain workers. The Labor Department went on to say that in November, average hourly wages jumped 5.1% from a year ago.

The fact that Americans have well-paying jobs is not bad news: people are working, there are jobs available, workers are well paid, and most are able to keep up with inflation while still having to creativity in some of their spending.

This means, quite frankly, with the strength of hiring and wage increases capable of helping to keep Americans afloat, everyone is “hanging on” despite inflationary price increases. It also potentially means that the Fed may now have to keep interest rates high for even longer than many had assumed.

It will take time. The Fed raised its benchmark interest rate from near zero in March to nearly 4% in an attempt to bring inflation back towards its annual target of 2%. For now, they just need to sit back and watch a bit to see how the economy naturally adjusts to these higher interest rates. It is likely that what the Fed has done with higher interest rates will only dampen the desire for new demand.

While Americans may not be in the mood to increase spending any further and may try to cut back a bit, there is one country in the world that might be ready to increase spending, with consumers ready to pounce: China.

Remember how Americans spent money like crazy coming out of the haze of COVID lockdowns? Granted, our government provided us with money in the form of stimulus money, but think of the money spent on food and travel when Americans were ready for vacation – anywhere but the four walls of their house! China might be ready to do the same.

All eyes are on China as it emerges from the COVID lockdown

Their people have spoken. Tired of the blockages, they begin to revolt in various ways across the country, all 1.4 billion of them. In response, China continues to make various efforts to ease COVID lockdowns and reopen the country. The floodgates won’t open immediately, but can you imagine how 1.4 billion people will want to get out and move around the country and the world after being locked down for two years!

If you know me, you know that I felt strongly that China extended its COVID lockdown due to its lower food consumption than it wanted to admit. Also, they haven’t had an amazing crop growing season this summer, and their crops have suffered. Now that China has a replenished food supply with its harvest complete, and US and South American soybeans arriving in the country, it will seek to reopen the country. They have to organize the whole back-to-school party.

The Chinese boom is coming. The Chinese are just planning for re-emergence. In fact, the 24-member Politburo, the Communist Party’s main decision-making body, meets every year at the beginning of December to set broad economic policy guidelines for the coming year. They discuss political goals, gross domestic product targets and economic paths forward. With 2022 growth expected to weaken to 3.3% last year, Chinese officials are expected to point to greater efforts to stimulate their economy. They must bring workers back to the factories and bring their country back to profitability and growth. This in itself will stimulate the demand for raw materials, food and energy.

Crude oil – the energy battle persists

Crude oil, like other commodities, continues to trade in a tight range, near critical areas of long-term price support. Recent headlines revolve around crude oil production with OPEC and Russian oil price caps. The price cap, implemented by the G-7 (Canada, France, Germany, Italy, Japan, UK and US) will prohibit Western companies from insuring, financing or shipping Russian oil to unless oil is sold below $60 a barrel. Russian officials have repeatedly threatened to cut oil exports in response to the cap, arguing that the sanction changes supply and demand dynamics and could cause world prices to rise significantly.

The cap will reduce demand in many Western countries. However, two of Russia’s biggest customers (India and China) will likely continue to buy Russian crude oil and use it to increase their supplies. Russia is already China’s largest crude oil supplier, accounting for about 20% of its crude imports over the past two months, while India buys nearly 25% of its crude oil needs from Russia .

If Russia meets this cap by finding new customers or producing less oil (because it will have fewer Western customers), that means there is less crude oil available in the world. If OPEC doesn’t increase production and if the US doesn’t increase production, we end up with tighter supplies. This, of its own nature, would drive prices higher, especially at a time when Chinese crude oil consumption may increase as they emerge from the COVID lockdown.

Mother Nature wins in the end

Weather monitoring is just as important as global economic policies. The United States still has nine grains and oilseeds commodities with tight ending stocks. Global supplies are down for corn and wheat. The entire northern hemisphere did not record record cereal production this summer due to heat and drought. Dryness persists in Argentina during their key growing period, while Brazil receives too much rain in some areas and a bit drier in other parts of the country. Don’t forget about the drought that is currently affecting most of the United States.

All of the above can create headaches for grain marketing in the New Year. There will be great price fluctuations in the weeks and months to come. The chart indicators for corn and soybeans are trading in very large pennant flag formations, suggesting a major price breakout is looming. Higher or lower depends on all the fundamentals above. But looking at the charts, the breakout of the flag for soybeans suggests a potential price move of $2.50. The breakout of the corn pennant suggests a potential $1.00 breakout move ahead. Again, higher or lower depends on all of the above factors.

You need to plan a scenario and be mentally and emotionally ready for either scenario to play out.

  • Have a marketing plan ready for both options.

  • Know your cost of production for 2023.

  • Monitor your local base levels.

  • Be ready.

  • Putting grain in your bin and forgetting about it is not a totally effective marketing plan. There are many moving parts as the New Year approaches, and you need to be ready to pounce when the opportunity presents itself or fight back when the going gets tough.

If you have any questions, you can reach Naomi at naomi@totalfarmmarketing.com or visit www.TotalFarmMarketing.com.

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