Covering five states and diverse sectors of agriculture, Northwest Farm Credit Services (Northwest FCS) serves a large, vital region of the agriculture industry. Over the next two articles, we will preview some of the information found at www.northwestfcs.com, and cover a quick summary of Northwest FCS’ state Outlook Conferences throughout their territory.

The agriculture industry is at an economic crossroad. Coming off the commodity super cycle, this period will most likely be recorded as an economic aberration in history. As the industry navigates this crossroad, there will be signs one should watch for. In the coming few years, the following four areas are certainly among those important signs.

“Markets Giveth and They Taketh Away”
Record profits in many commodities and industries were driven by emerging markets. With increased economic power and population growth, the emerging nations fueled agriculture and commodity-driven nations. Now on the backside of the economic cycle, slow economic growth in the emerging nations reveals a very different bottom line for many producers that may be with us for the next few years.

Energy and Commodity Prices
If the commodity super cycle was analogous to the “Land of Oz,” energy would be part of the yellow brick road. From oil prices to renewable energy production, energy was a large part of the past cycle’s record profits. In particular, ethanol was a modern-day version of the Russian importation of wheat in the 1970s, causing prices and demand for fuel stocks - such as corn - to rocket. Today, profits in the ethanol industry have plateaued with ethanol plants in maturation, consolidation or closure.

In addition, oil prices can be a game changer on price, cost and economic margins in agriculture. The price of petroleum and oil are psychological factors for businesses on both the cost and market sides of the equation. Agriculture is in the crosshairs of the great energy wars between the traditional oil sources including the OPEC nations and many of the new domestic energy sources such as wind power, ethanol and solar power. On the other hand, there is ample opportunity for agriculture in energy production as well. The winner of the great energy wars will determine the short- and long-term balance of economics in agriculture, and the volatility of price and cost.

Central Banks
Another crucial factor in agricultural profitability is the central banks. Whether it is here or abroad, central banks will dictate, at least to some extent, the income and balance sheet statements of agriculture. Interestingly, the low value of the U.S. dollar was a tailwind for agricultural prosperity, and now the trade winds have reversed. In an extended period of dollar strength, we will continue to see the profits of export-driven businesses suppressed.

The Wrath of Mom!
Mother Nature can trump the aforementioned elements quickly and dramatically. Actually, weather can impact prices and economics unlike any other factor. Be forewarned that a weather event will most likely provide only temporary relief for prices as the aforementioned factors will continue to weigh heavily on agricultural economics.

Markets, energy, financial policies and weather will all play significant roles in future farm fortunes. As producers navigate the agricultural crossroads, there will be directional signs, some of which lead toward profitability and others that will not. For more information on the important signs to watch, visit www.northwestfcs.com.