Ag retailers can still expect profitability in 2023 after setting records in 2022, but they face an emerging set of risks that could depress profit margins and challenge traditional business models in the years ahead.
Setting the stage is the shifting grain market. More favorable weather patterns (the end of the La Niña weather effect) and increasing planted acres should drive higher grain production – leading to what we believe will be a downturn in the crop cycle (i.e., lower grain prices) during 2024 or shortly thereafter.
From a big picture perspective, farm supply cooperatives will see challenges in five risk categories – macro, financial, operational, business model, and regulatory – but must navigate three emerging risks in particular.
Over the next five years, ag retailers will need to get a handle on changing customer needs, lower expected industry working capital, and rising property casualty insurance costs.
Although there is no silver bullet solution for managing these three risks, ag retailers have options and opportunities including selling more value-based alternative products (biologicals, specialty nutrients) to address changing consumer needs, adopting digital technologies, and accessing alternative risk transfer mechanisms (such as self-funded insurance captive arrangements) in addition to traditional property-casualty insurance solutions.