For the past few years, Aric Olson, President of Jain Irrigation, Inc, has helped us with an annual business forecast for the agricultural irrigation market. Last year Aric made a few spot-on predictions and overall scored very high. In November of 2021, Aric forecasted for 2022 that ag irrigation would grow 15% in aggregate. Center pivots grew 25%, some permanent crops using drip irrigation grew less, but overall growth was 15%. Lots of the growth was price increases and inflation. The strong dollar would impact ag negatively, which was true, and the rough inflation numbers did not help either. Labor was short as well, but growth was still there.
Are Supply Chains Back to Normal – A year ago, to ship a container for shipping from China to the U.S., the cost was over 15K. Today that same container is shipping for around $2K. Lead times are coming down by almost 50%. This is a radical change from last year. On the electronics side, it is still tricky but changing rapidly as well. The electronics supply chain will almost return to normal in around six months. In general, freight is down, and the global supply chain is getting back to normal. This is very positive for 2023. Overall the supply chain is more reliable. The challenge is most businesses are carrying too much inventory. This may put a drag on the economy for the next 12 months. But an excellent typical supply chain is on the horizon.
Future Trends For Irrigation Pricing – A little while back, polyethylene prices went from approximately $1200 a metric ton to $2,200 in less than six months.
The main driver of the price increase was the need for containers to ship products. As a result, we lost the global market for resin. Now that containers are available, the price is decreasing. $1500 a ton is the norm. Resin pricing should come down to end users for the year. It will take a while for this market to come back to equilibrium. Labor inflation is real, and the labor rate increases will stay.
Commodity Yields – Corn farmers had an incredible year. Ninety billion dollars of a corn crop. Almost double in 2020. Double in 2 years. Soybeans also had a fantastic year. Midwest farmers did well and then invested in irrigation and technology. Cotton, fruits, and nuts did not do as well. The net farm income was the highest since 1973. There should be a good investments back into farms this year. This increase came while farm inputs increased by 12%. This was not all farmers and all crops, but it was a significant amount.
Strength of Dollar – Any time the dollar index increases about 80 or 90, it puts pressure on U.S farmers. The dollar was solid last year. It has decreased recently but is still strong, and exports are impacted negatively with a strong dollar. This will reduce some of the reinvestment into farms this year.
The General Economy – Housing starts impact landscape irrigation directly. Housing starts are declining rapidly. Interest rates are very high, and fewer people are buying houses. We will not see a significant decline in home values, but housing starts will continue to decline. This will put downward pressure on the economy and landscape irrigation. This will also reduce the demand for PVC pipes. Ag land prices may decrease slightly this year due to the higher interest rates.
Will the Irrigation Industry Grow in 2023 – California’s drought situation is improving, but challenges remain in the central part of the United States. The Midwest is still in exceptional drought. The landscape irrigation market will have little to no volume growth and see an up to 5% price inflation increase. The ag irrigation market will see 0 – 10% volume growth with 5% revenue growth.
Other Issues To Watch – There are many variables to watch in 2023. These include droughts and floods. How will China do post-COVID? What happens with energy costs in Europe? The Ukraine conflict and the escalation. Grower input costs and water supply issues.
As you can see, there are many reasons to be optimistic for 2023. However, some variables could cause dramatic shifts in direction. Therefore, the best position for 2023 is to take advantage of supply chain improvements and input cost reductions but stay flexible if you have to pivot.
You can watch Aric’s entire webinar below for free. Also, please feel free to put your forecast for 2023 in the comment section below, and follow me on Twitter at H2oTrends for updates during the year.