As inflation continues to squeeze agriculture, there are a lot of unknowns ahead. Certain data points, though, can give us an idea of what is coming down the pike for farmers and rural America.
It is hard to narrow down just how much pressure inflation is putting on the commodity markets. For now, inflation is being led by supply and weather, not demand.
“To give you an example, we’re seeing mortgage applications in the latest week at their lowest and 22 years. They’re down six and a half percent in the latest week, four straight weeks lower.”
Mark Zuzolo, President of Global Commodity Analytics and recent Market Day Report guest, explains how that translates to commodities.
“Lumber prices at the futures market at the Mercantile Exchange are now down about 50 percent. They’re their lowest since last September.”
When it comes to the ag and energy markets, Zuzolo says the impact is not as clear-cut.
“We could be doing a lot more, in my opinion, to help secure more supply in energy and therefore lower the inflationary pressures in energy, but the levers we have right now when it comes to the energy side of the equation are almost all government policy and not a lot of market mechanism.”
Zuzolo says the government has options, but so far is using virtually none of them to bring down energy inflation. In fact, he says the government is doing little except relying on the Federal Reserve.
“And so, my take is, is that we’re not through the worst yet in the energy side of the equation for inflation and if Mother Nature doesn’t cooperate with us any better than it already has in the northern hemisphere.”
For that reason, Zuzolo believes we have not seen the worst when it comes to food inflation. He believes at this point, a recession is inevitable, and it is not even a question of a hard or soft landing anymore. It is a question of how long the hard landing will be.
“Whether it’s a deep recession only lasts three months or whether it ends up being a multi-year, almost depressionary-type scenario like we had back in World War One, World War Two time period.”
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