Fallout from Middle East wars spread rapidly as spring began, ratcheting up a trifecta of risk for farmers. Traders worried whether soaring energy costs could spur inflation, triggering a recession and perhaps even a return to the stagflation that tipped off the 1980s Farm Crisis.
Crude oil is again the culprit. If fuel stays too high for too long it could force consumers and business to cut back on other spending, dampening overall demand and throwing the economy into hard reverse.
Not all spikes spark recession
But remember: Not every price spike causes a recession. Case in point: The most recent inflation came after the pandemic recession of 2020. So, when searching for great divides, the so-called Great Financial Crisis of 2008-09 fits the bill best, and that slump came from irresponsible lending to homebuyers, not pain at the pump.
Here’s how grain prices, and your farm’s bottom line, could fare.
From 2007 to 2025, net farm income rose and fell hand-in-hand with inflation. That is, farms made more money when inflation was higher, lost ground when it was lower. But until 2006, the opposite was true: Farm income was higher when inflation was tame, and vice versa. This means any prediction about inflation’s impact depends on the time frame used.
The health of the economy, as measured by Gross Domestic Product, or GDP, also factors into the equation. Over the past two decades, healthier GDP meant better farm incomes. That wasn’t the case before 2007. The reason for this dichotomy throws back to energy. In recent years, a growing economy used more fuel to run factories and offices and transport the goods they manage. In the 1970s and ‘80s, lack of fuel closed mills and stalled traffic.
These trends were true with both popular yardsticks for inflation – the Consumer Price Index and Personal Consumption Expenditures. The first, CPI, tends to be more volatile than the latter, PCE, which is the preferred gauge for the Federal Reserve and is updated more frequently than CPI. It reflects when buyers are choosing cheaper products as substitutes and stretching their greenbacks further.
Corn and soybean prices in turn followed the Great Financial Crisis divide for GDP. Before 2007, grain prices tended to rise when GDP was weaker, as booming commodities weighed on growth. But in the last two decades, corn and soybeans moved with the broader economy as a rising tide lifted all boats.
Impacts of stagflation
Getting a good fix on the impacts from stagflation is more difficult because the twin towers of doom and gloom are thankfully rarer. Since the start of the Great Depression in the 1930s, stagflation only bit 10 times, roughly once in every 10 years. Before 2007, stagflation was modestly associated with higher corn and soybeans. More recently the opposite is true.
No doubt there’s truth to the warning that those who ignore history are doomed to repeat it. Mark Twain maintained that history doesn’t repeat, “but it rhymes.” That may be the best advice, except for the usual fine print: Past performance is no guarantee of future success.