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Shellady: What to expect as concerns of inflation grow

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I don’t have to tell you that farming can be tough. You may remember that I wrote about how the business of farming has to dodge all of the bullets that other businesses have to dodge as well as good ole’ Mother Nature. It is a natural outlier that makes planning more difficult. But it is that time of year, my favorite time of year. I love harvest. It has so many meanings, both religious and practical. Reaping what we sowed. It is well and truly a wholesome time of year. But it is also the time of year that we must renegotiate our land leases and get the paperwork ready for the spring to start this whole process over again. When it comes time to sit down at the table, I have a very good idea of what it takes to get things in the ground and then get them out of the ground.

We are moving into some very interesting times. That could be the most understated comment of the year. All I must do is bring up one word – inflation.

We are seeing price rises all around us. Most importantly, we are seeing it in food and energy. All the things on our dining room tables, brought to us by farmers, are seeing massive price rises. The problem is that these price rises are not really getting back to the farmers and ranchers getting it to our tables. I recently had to renegotiate our land rent. It is with a farmer my family has known for a very long time. We are very transparent with each because we are both business partners and friends. He can be honest with me and laid out some of his choices for the end of this year and the planting season coming up early next year. He has done a good job and pre-purchased a lot of his inputs for next year. The prices are on fire. As it stands, he will be into an acre of corn next spring for around $1000 per acre. Wow. My father has been gone a while now, but I have vivid memories of trying to make at least $250 per acre back in the day. Now these poor guys have input prices four times that.

So, I know there are a few of you out there that like to do the math, but let’s just say that corn is $5 per bushel next harvest. Today it stands near $5.25, but for argument’s sake let’s use $5.. If, IF, you get 200 bushels per acre – congratulations – you just broke even. You see where I am going with this? Things next year are going to get dicey as these inflationary pressures persist. I must admit, I was in the camp that believed these prices would abate, but they have now been here so long that they are accepted.

Inflation is a silent killer. If eats away at everything we spend every day. Just look at the price at the pump you are paying for gasoline. That is a tax that we pay every day – not once a year. This push to get off fossil fuels will be an expensive maneuver for all of America. The government is trying to make it a revolution, but these things work out much better when it is an evolution. They are trying to push Americans to renewables, wind and solar, before they are ready to take on the energy load. They are trying to influence behavior when all they are doing is driving the price of fossil fuels through the roof. Just look at natural gas. If we have a rough winter, we will be in a difficult spot. If you think I am exaggerating, there are reports that Europe is already ahead of us, and some have likened it to the energy shortage we had here in the U.S. in the 1970s.

Have you been to a grocery store lately? I am having a hard time understanding all of this. We had the best economy the world had ever seen just 18 short months ago. We shut things down in March 2020. I thought that was a bad idea then and I feel vindicated about that view today. However, when it comes to restarting this $28 trillion economy, we are all flying blind. I thought we could just flip the switch and away we go.

But I was very wrong. Very wrong.

You see, this economy relies on a lot of things being in the right place at the right time. We can control what we can control, but there are things outside of our borders that we cannot. We can’t control the supply lines in other, lesser developed countries. We can’t control the fear of the virus that is still very prevalent in our workforce today causing thousands, if not millions, to stay out of the daily grind. It is like putting a puzzle back together instead of just flipping a switch. We have 11 million open jobs in this country and 8.4 million unemployed people looking for work. Why can’t we just put those things together and make a big "employment sandwich"? It is just not working out that way, as skills are not meeting the demands, and only now do we see people entering the workforce as the government's COVID top up expires. Maybe things get back to normal sooner than I think, but things are pointing the other way.

We know that farmers can carry a bit of leverage. These machines are expensive. But we have a Federal Reserve that is thinking about raising rates to combat these inflationary pressures. The only problem is the economy is showing signs of weakness. It weakened in August. Never in my career did I ever think that I would be having a talk about the Fed raising interest rates while the economy seems to be weakening. And, add to the mix the historic tax raises that the new administration is talking about ($3.5 trillion spending bill needs to be paid for) and we have a big problem on our hands.

That is what I am worried about for next spring.

Buckle up.

Scott Shellady serves as markets anchor for RFD-TV and appears regularly on CNBC, Bloomberg, CNN and Fox Business News.


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