2022-01 PAER: Agricultural Outlook for 2022

Welcome to the Purdue Agricultural Economics Report (PAER) Annual Outlook issue. As usual, the editors have solicited contributions from around the Purdue Ag Econ department on a number of topics. These can be roughly split into “general economy and policy” and “agricultural economy”. In many cases these authors contribute on an annual basis so we’d invite you to look at the PAER archive to find their past writings to get some perspective on how these experts use data trends, recent events, and core economic and financial principles to try and highlight the items they will be keen to watch the coming year. Of course, the annual outlook is really a one-shot digest of the year-round process of our Ag Econ faculty making regular contributions to economic phenomena. One such monthly output we’d like to highlight in this introduction is the Ag Economy Barometer from the Center for Commercial Agriculture. I’d encourage you to visit the web homes of all the department’s centers as a means of getting more regular writing on topics of interest.

In this issue:

• Larry DeBoer explains the complicating role of the ongoing COVID pandemic in determining economic growth. He highlights the role of inflationary expectations – many sprung from responses to COVID – as key to the economy matching recovery growth and labor force participation targets.
• Maria Marshall digs deeper into the COVID economy – looking to how households have responded to COVID economy issues such as shutdowns, lost services, unemployment etc. Marshall identifies a number of issues that might cause rural economy recovery to lag that of the general economy.
• Russ Hillberry shifts the focus to economic policy, examining the role of transition from Trump to Biden presidencies and the opportunity to pursue some more cooperative and multilateral aims through international agreements. Hillberry cites resolving previous trade conflicts – particularly those with China – as important for agriculture’s export fortunes as well as fostering a trading system that is more resilient to supply chain shocks.
• Roman Keeney turns the policy focus to agriculture, examining the role that government support has played in farm earnings since 2012 when farm bill reforms away from direct payments began. The past four years have seen large transfers to farmers due to trade and pandemic shocks. Keeney considers whether there is a role in the Farm Bill to provide farmers with clear expectations about forthcoming support from general economic shocks.
• In a return to the inflation topic highlighted by DeBoer, Jayson Lusk examines offers a primer on food price inflation and examines recent experience in context of purchasing power. Lusk suggests that the slow-down in federal spending and remedying the labor shortage are key to curtailing the inflationary pressures that drove prices of many goods higher in 2021.
• Nicole Widmar’s Dairy Outlook sees pressures on food inflation continuing due to reduced cow numbers and production and slowly recovering exports. Widmar highlights that as the near-term economic focus – but identifies a number of other issues for Dairy watchers related to health and policy effects of changing consumer habits and preferences for milk and milk fats.
• The role of prices continues to be an important discussion point as Michael Langemeier writes about the Center for Commercial Agriculture’s Crop Costs and Returns Guide. Langemeier details the rising costs of fertilizer and other inputs relative to expectations for commodity prices and sees tight margins for 2022.
• Todd Kuethe takes on the outlook for land values and cash rents, identifying that prices in land markets may still have some catching up to the agricultural receipts of the past two years. Kuethe looks to the expected contribution margins estimated in the Crop Costs and Returns Guide and sees strong likelihood of continued increase in the coming year.
• Finally, we close the issue with Brady Brewer and Todd Kuethe examining agricultural credit trends. The combination of low interest rates and supplies of funds from lenders should lead to a strong credit market for farmers in 2022. They indicate that Ag Credit may have largely stabilized in response to persistent COVID fears and that a key issue to better understand is the uptick in non-payments and whether a liquidity issue may have arisen.

I’d like to close this editorial introduction with my gratitude to all the contributors. I’d encourage PAER readers that want to know more or follow along throughout the year to follow Purdue Ag Econ’s social media as it will feature timely outputs of these and many of our other excellent faculty as they continue their various efforts in research and extension on topics of interest to Purdue’s stakeholder community.

– Roman Keeney

Associate Professor of Agricultural Economics

Editor, Purdue Agricultural Economics Report