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Is Risk Management A Necessity Again?


The necessity for managing price risk in the ag sector, as well as non-ag, is likely coming into vogue again. The two-year bull market for grains ended spring 2022 with collapses from lofty levels in $8 corn, soybeans over $17 and Chicago wheat over $13.


The supply-driven bull markets that began in September 2020 for grains have seen gains reset back to those levels. Soybeans have reset 50% of that price move.

The profit-landscape of U.S. agriculture has changed, putting a new emphasis on risk management. Twelve years at 2% inflation and interest rates near zero were an outlier as the chart below reveals.


I lived through the 1980s, when inflation and interest rates were much higher — as did many of those in government and the Fed. While interest rates are not at 1980s levels, capital expenditures for land and machinery are much higher. Return on investment (ROI) requires a new perspective for both depreciable (machinery) and non-depreciable (land) assets.




By JERRY GULKE

October 3, 2023

agweb.com


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