The world’s a mess, so it’s hard to have much confidence about predictions for the world economy in 2023.
For farmers, the good news is that crops aren’t expected to weaken along with industrial commodities if the world sails into recession, as most expect. This is one of those times when it’s good to be somewhat disconnected from the rest of the commodities complex.
What are the macro-economic conditions that will form the backdrop for the 2023 farmer economy?
- incoming recession
- high inflation
- rising interest rates
- China’s economy reopening during COVID
- Russia’s stalled invasion of Ukraine
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This is not a time in which the world economy is gently following a predictable cyclical trend. This is not the era of “the Great Moderation,” in which we sailed the temperate seas of the four-year business cycle and could operate and invest with confidence. That era is now about 15 years past, with a post-2007 age of zero interest rates and non-inflationary money-printing being replaced by this period of soaring inflation, surging interest rates and overheated everything. Those two freakish poles of economic extremity leave us in a whole new world, as Jasmine and Aladdin would have said.
Here’s a synopsis of today’s consensus view on what happens in 2023:
World economic activity slows and some countries fall into recession. High inflation is pulled down to moderate but still too-high levels by the end of the year, as central banks around the world squeeze businesses, consumers and governments with much higher interest rates than anybody has seen since the mid-2000s.
China moves away from its “zero-COVID” policy and gradually reopens its economy but faces repeated local and regional shutdowns as COVID rates explode due to poor domestic vaccines and a lack of natural immunity.
Commodity prices will weaken as some economies suffer recession and as China has trouble re-opening and getting beyond the pandemic. Those problems in China will keep manufactured product prices around the world high, pushing back against central bank efforts to restrain inflation.
The Russian invasion of Ukraine will remain bogged down, with each side too weak to deliver a knock-out blow. Grain shipments out of the Black Sea will remain a fraught and politically complicated challenge, while Russian and Belarusian fertilizer supplies will be mostly stranded, causing world fertilizer prices to remain high and beyond the reach of many of the world’s poorer farmers.
Europe will struggle with extremely high natural gas and crude oil prices, keeping its industrial heart of Germany in recession.
Crop growers here should be in a sweet spot, so far as there is one in a sickening economy. Crop challenges elsewhere are keeping prices strong, farmers elsewhere are cutting back on fertilizer and should have reduced yields, the Canadian dollar will weaken on falling oil prices, and we’re going to have perfect growing conditions and produce the best crop ever.
That’s pretty much the consensus view for 2023, minus the final clause of the last sentence above, which is mine alone.
Of course, anything can happen. Vlad the Invader could guzzle too much vodka and fire a nuke at Ukraine — or us. That would be disruptive. China’s leader, Xi Jinping, could decide that the perfect distraction from the COVID reopening crisis is an invasion of Taiwan. That would be troublesome.
Rising interest rates could provoke a worldwide debt crisis, crashing the world economy and strangling demand.
Things will happen that we don’t expect.
But from a position of reasonable expectations today, 2023 looks like it’ll be a grim year for most of the world, but western Canadian farmers should be able to have another good year, as long as they get rain and sunshine.
