Inflation begins to loosen its grip

The U.S. economic system will progressively gradual by way of the primary half of 2023. Fears of a recession are nonetheless excessive and nonetheless warranted.

Behind the financial showdown are rate of interest will increase meant to fight swiftly rising. However with the unemployment fee at a 53-year low and inflation trending decrease, forecasts are turning rather less gloomy.

U.S. customers are nonetheless spending however doing so by rising dependence on credit score. They’re lastly pushing again on value will increase on items, a response to steady declines in actual wages and dwindling reserves of pandemic financial savings. Like customers, companies are spending extra cautiously, in accordance with a brand new quarterly report from CoBank’s Knowledge Exchange.

The Federal Reserve raised its benchmark in a single day fee by greater than 400 foundation factors in 2022 and it isn’t completed climbing. The Fed has made it clear it’s targeted much less on headline inflation and extra squarely on the labor market and core companies inflation excluding housing. With job progress far outpacing the provision of staff, the shortage of labor is trigger for concern, particularly for the companies sector.

China’s abrupt reversal of its zero-COVID coverage is forcing shutdowns at manufacturing vegetation and inflicting main delays in trucking and at ports as infections improve. U.S. exporters are feeling the impacts now, as provide chain issues have been stopping the motion of many items into and round China.

Grains, farm provide and biofuels

Grain markets balanced a number of challenges within the fourth quarter, from the conflict in Ukraine and financial slowdowns in China and Europe to rate of interest hikes within the U.S. and different developed economies. The continuation of those components and La Nina climate situations into 2023 will seemingly put stress on grain storage and merchandising margins.

Shares-to-use ratios for corn, soybeans and wheat completed 2022 at multi-year lows pushed by sturdy home demand.


For the second yr in a row, ag retailers posted exceptionally sturdy income and revenue progress, pushed by sturdy grain market fundamentals. Curiously, regardless of excessive spring demand and tight international provides, fertilizer costs declined through the fourth quarter amid falling costs for pure fuel. Whereas the farm provide sector begins 2023 on sturdy monetary footing, rising wages, larger rates of interest and continued excessive transportation prices are prone to tighten margins. 

Ethanol manufacturing within the fourth quarter practically caught as much as pre-COVID ranges, averaging 15.5 billion gallons for the quarter. Revenue margins averaged $0.27/gallon in comparison with $0.25 for the primary 9 months of 2022 and long-run historic common ranges of $0.25 to $0.30. Profitability was properly above common throughout October and November, however rising corn costs, coupled with a 12% decline in ethanol gasoline costs, pushed down margins in December. 12 months-round gross sales of E15 gained momentum with the Biden administration’s announcement of its intention to assessment states’ proposals. 

Animal protein and dairy

Animal protein manufacturing surged within the fourth quarter, with the weekly common rising 6% in comparison with the third quarter. Whereas chilly storage inventories edged larger by way of the second half of the yr, they continue to be beneath the five-year common because of the ongoing energy of demand.

In a significant shift from the prevailing situations earlier within the yr, rooster markets have been well-supplied through the fourth quarter because of elevated placements and better dwell weights. Retail rooster costs remained elevated, averaging $1.85/lb. for the quarter. Nonetheless, wholesale rooster costs crumbled amid the stress of mounting provides. Export markets have been much less affected. Total, U.S. rooster stays supported by international markets regardless of the weakening fundamentals at dwelling.


Shrinking market-ready fed cattle provides are bullish for cattle costs, however beef costs have drifted down from their summer time highs. Whereas retailers offered modest aid on the meat case through the fourth quarter, and a reduction to yr in the past ranges, client demand remained resilient regardless of comparatively excessive costs. On the wholesale stage, nonetheless, beef costs have dropped from their elevated ranges. From January highs to December lows, the boxed beef cutout misplaced 15% of its worth. Processor margins suffered by way of the fourth quarter as a consequence of moderating beef costs and better working prices.

Close by lean hog futures accelerated rapidly to start 2022 and had gained 68% in worth by late July, peaking at $122/cwt. Hogs retained a lot of that help by way of the third quarter. However regardless of tight hog provides, valuation succumbed to the stress of seasonal tendencies and processing limitations through the fourth quarter. The lean hog index dropped into the higher $70s to finish the yr, and the hog market seems poised for a big bounce in 2023.

U.S. milk costs continued softening within the fourth quarter with Class III milk futures falling 5%.Butter costs have additionally fallen in a faster-than-expected retreat. Spot butter costs are down practically 10% from the document highs scored in October. Report massive whole U.S. dairy exports for 2022 carried by way of the fourth quarter, underpinned by current weakening of the U.S. greenback. Nonetheless, the outlook for U.S. exports within the first half of 2023 is deteriorating. Dairy product costs are anticipated to grind decrease as post-holiday season demand wanes amid unsure international demand.


To study extra, learn the entire CoBank Quarterly.

Supply: CoBank Data Alternate