Welcome to Purdue Ag Econ’s Outlook issue for 2023. The economy remains uncertain following COVID, supply chain disruptions, global conflicts and historic inflation. In some past economic events like the financial collapse of 2008, agriculture maintained a degree of insulation from the broader economy fluctuations and uncertainty. This has not been the case in the current wave of economic shocks and those factors feature heavily in our authors’ contributions for this year’s issue. We start the issue with three articles focused on the broader economy and policy environment. From there, we take a focus on the price and production situation in food and agriculture with contributions on food prices, dairy, and crops. Finally, we close with two articles tuned to farm income, finance, and performance – looking at the credit and farm asset situation.

A look inside the issue

Larry DeBoer considers the possibility of recession in 2023, noting the unusual match between negative growth and declining unemployment. He indicates this and other factors may make any recession be shallow – and may produce enough conflicting indicators to never be tagged as an official recession under traditional rubrics used to classify such events.

In agricultural trade, Russell Hillberry offers insight on the many factors that have contributed to increased volatility. Foremost among these is the war between Russia and Ukraine and the global market disruptions that have followed from that conflict. He notes that sanctions on Russia (and Belarus) are expected to remain in place beyond 2023 leaving persistent effects from this conflict even if it is halted in the coming year.

The 2018 Farm Bill is set to expire in September of the coming year and makes 2023 critical for farm policy. Following multiple years of emergency support and agriculture benefitting from COVID relief packages, government direct support to agriculture is set to fall dramatically. Roman Keeney discusses the implications of these changes and notes that the short timeline and a wave of new congressional representatives make replacing the 2018 Farm Bill in 2023 a significant challenge.

In food prices, Jayson Lusk sorts through some key determinants of price increases – including those that may have resulted in food price inflation outpacing that of the general price levels in the economy. He indicates that food prices became one of the largest consumer spending concerns over the course of 2022, eventually triggering a number of responses in spending and substitutions by households. The outlook for 2023 is murky but leading indicators on consumer expectations point to a return to more normal changes in the average food price level for the year ahead.

Nicole Widmar uses this outlook occasion to update the dairy situation and to review 2022’s formula shortages – paying particular attention to the initial causes and the lack of timeliness in response. She draws from recent analysis to highlight the first significant notices of a potential supply shortage and the severe lag in awareness and response by consumers, industry and policy-makers. The delay in scoping the problem almost certainly exacerbated the panicked response in markets and households to continued news of shortage.

Looking ahead to the 2023 crop year, Michael Langemeier provides updates from the Center for Commercial Agriculture’s Crop Cost and Returns Guide pegged to December estimates. The most recent data indicates that input costs should be similar to the quite high levels of 2022 – which for fertilizer and land rents were above recent peak levels seen in 2013 and 2014. These continued high costs will keep profit margins tight in spite of high commodity prices – with e.g. the expected gross revenue from an acre of corn unable to fully cover land rents and other market rate returns to resources allocated to production.

Brady Brewer and Todd Kuethe review the past year in finance, when the Federal Reserved ratcheted interest rates upward on seven consecutive occasions of the Fed’s Open Market Committee meeting. This has resulted in a sharp turn against long running trends of average interest rates for agricultural loans. Increasing rates dampened demand for operating loans while increased fertilizer prices spurs more borrowing – these competing factors continue to set the pace of borrowing. The authors close with discussion of the supply side of funds, flagging that as an item to watch in the coming year.

We close our issue with Todd Kuethe’s look ahead to land markets for the coming year. Each summer the Purdue Ag Econ Report devotes an issue to land values – including reporting on the most recently collected data from Indiana surveys on land markets. For this interim report, he reviews other survey reports and indicators that might provide signals for the coming year and to put data from Indiana’s summer survey in context with regional findings and trends. Taking into account a number of factors, Kuethe expects land rents to increase but at lower levels than the record increase seen in 2022.

Closing thoughts

Each year Purdue Ag Econ faculty take stock of a number of key issues in the agricultural economy and look to provide some perspective for the coming year in this Outlook issue. Hopefully, this collection provides a good starting point for decision-makers who will need to monitor developments throughout the year.

The hope with this issue is to provide a snapshot of outreach expertise in Purdue Ag Econ – but I want to close this editorial by pointing readers to the many ongoing contributions of Centers in the department to provide regular and timely information for the state we serve. Whether it is the Center for Commercial Agriculture’s periodic market outlook reports, the Center for Food Demand Analysis and Sustainability’s monthly consumer reports, the Purdue Center for Regional Development’s recently developed job earnings index or any of the many other center and individual outreach efforts of faculty, staff, and students – the folks at Purdue Agriculture and the Agricultural Economics department are making daily efforts to contribute in ways of value to our Indiana stakeholders.

All the best in the New Year!

Roman Keeney, co-editor Purdue Agricultural Economics Report