It is hard to find a silver lining lately when it comes to the grain markets, and grain strategists warn the dark cloud over the industry could hang around for some time.
“I think we’re in this for a couple-three years unless we have some sort of weather event, some sort of policy issue that changes the trajectory of the markets, or the money flow changes. People decide that they need to get back into commodities, and so they start buying commodities rather than selling them. But it is going to be a tough situation to see that change anytime soon, at least in my mind, at least in the short term and immediate term. We know, longer-term, that agriculture has cycles, and it will come back. It always does. And I would say, one thing, if there is a big of a silver lining is that those cycles seem to be happening a little faster rather than longer. It’s been about ten years since we’ve had the last down cycle, but if you look before that, they cycle was a lot longer. I think that’s the one thing to think about is those cycles are going to be a little bit shorter going forward,” said Stephen Nicholson.
Nicholson says while times may be tough, he expects the current down cycle to end faster than in the past. It is a situation Iowa Senator Chuck Grassley has seen before, but he says the ag economy is in much better shape when compared to the 80s.
“The only good news in an Ag recession is, it’s not a depression. Recent years, 75-percent of the land has been paid for, unlike in the 1980s when we had an agricultural depression…only 25-percent of the land was paid for.”
Grassley says situations like this make a good case for putting cash aside for a rainy day.
“It comes to the balance sheet for the ag sector. Overall equity is increasing about 2.7%. This is driven by farmland values, building values and those farmland and buildings account for about 80% of farm assets. Debt has also increased, but at a slower rate and about 1.6%. So on balance we see the debt to equity ratio falling, which is an improvement and so is the debt to asset ratio that’s falling,” said Spiro Stafanou.
The ag sector is patiently waiting for the Fed meeting later this month. It is where Chair Jerome Powell could announce the first interest rate cut since their campaign began.
