Revisiting the Outlook for 2024
Back in January, the forecast below called for more trade disruptions, insurance failings, and emissions-scoring in agriculture. Was I right/wrong/otherwise? Please share in the comments!
Trade Disruptions in Bulk Commodity Markets
Trade disruptions for agricultural commodities happen in different forms.
Market access limits, such as those facing the trade in cereals and legumes with high levels glyphosate residue, leading to rejections and costly new internal management processes.
Market access restrictions, such as those coming in California and Europe that could divert supplies to jurisdictions that do not restrict imports on the basis of ESG (environmental, social, and governance) criteria.
Trade flow disruptions, related to climate events and conflicts mostly, but also to control immigration as in the recent U.S./Mexico rail closures.
Heading into 2024, there is no end in sight to conflict and political uncertainty, while more new market access requirements will come into force. The issues underlying the trend towards increased trade disruptions are not easily resolved; thus, the agriculture industry must expect more, and the volatility that accompanies them.
Yet for the most part, the dialogue in farm/industry circles continues to defy the views of society and consumers, stymying industry preparedness. Until the different factions can come together and develop a common understanding of what’s best for people and the planet going forward, commercial agriculture stakeholders and primary producers will remain more vulnerable than is necessary.
Trade disruptions are indisputably bad for commodity producers and exporters… yet market rejections and new restrictions, climate and conflict-driven trade flow disruptions are predictable. This makes it possible for supply chain participants to plan and prepare for the shifts that will be forced upon trade, and to mitigate future costs.
Insurance Considerations
Of all the new policy and market influences that needed to be explored and analyzed in 2023, the changes facing the insurance industry look like some of the most brutal across the world economy. The industry’s challenges are being muted by structural supports in some sectors of the economy and regions of the world, but major cracks have appeared in others.
Further threats to the insurance industry seem inevitable in 2024 given current weather patterns. Wildfires and floods in 2023 that stretched insurers’ resources meant policy holders found it more challenging than expected to process claims and receive payments to replace lost property.
The social fallout of failing insurance coverage hits local economies hard when there are a significant numbers of property holders affected. These communities don’t bounce back quickly.
Recovery is slow too on farms facing rising threats from drought, floods, and disease outbreaks, which have been hitting all sectors of the agriculture economy for years now. The question becomes, how resilient are the traditional support mechanisms for farms thrust suddenly into an economic disaster?
And what do these programs provide to society in terms of protecting the environment and food accessibility?
Crop insurance appears resilient in its current form, due to the difficulty of changing programs jointly administered by regional and national governments and backed with legacy financing by commodity lobbying associations. The bad news is, crop insurance only supports traditional high-input monocropping on large industrial farms that are focused primarily on exporting production or converting it into fuel alternatives.
Still, even in the face of strong structural supports like crop insurance, the [Yield*Price] formula that determines payouts is declining in importance on regenerating farms, in the face of:
New payments for growing more diverse crops and reducing emissions;
Opportunities to market food directly, along with ecosystems outcomes; and
Restructuring the farm business to move away from being a total price-taker.
Summary
Every good look-ahead market forecast highlights the key factors to watch for in the year ahead. In 2024, the big economic shifts appear centered around mounting weather and trading risks.
Other shifts unfolding within the new model for farmland profit-maximization are expected to accelerate starting in 2024. Up until now, food CPG companies have been tiptoeing into the regenerative agriculture conversation with farmers on a pilot scale, and quietly, in keeping with the commercial sensitivities and the longstanding business model of commodity agriculture.
Watch for more new sustainability scoring reports to circulate in farming circles, each one forming the starting point for measuring ecological impacts over time. Carbon asset trading is out, while carbon-intensity (CI) scoring takes hold. CO2-equivalency calculations are improving, but remain far from perfectly reflective of field-level emissions, a topic gaining more scrutiny from consumers and brand marketers alike.
Jointly driven by markets and governments, the margins available from regenerative land management strategies will continue to creep on commodity yield-maximization and traditional market price discovery. As a result, some of the tools used historically for financial forecasting and decision-making in farmland management – including significant ones like grain supply and demand analysis – are on the way to becoming obsolete.