New Era Begins, Thanks to Fed and Argentina
This week has been full of game-changers for agriculture.
Congress finally repealed the country-of-origin labeling law known as COOL, thanks to the threat of $1 billion retaliatory tariffs by Canada and Mexico. Crop insurer RCIS was bought by Zurich Insurance. Argentine president Mauricio Macri scrapped export taxes on wheat, beef and corn, trimmed tariffs on soybeans, and devalued the Argentine peso.
And the Federal Reserve raised interest rates for the first time in nearly a decade.
“The bottom line is that we ended an era and started a new one,” said Jerry Gulke, president of the Gulke Group in Chicago, speaking on Farm Journal Radio with Pam Fretwell. “We’ve ended 10 years of zero interest rates, and we’re starting whatever it is … that rodeo is over.”
It means a very different economic environment going forward.
“If you think about it, anyone who has been in the business for 10 years—if you started in the business of analysis or stock market or advisory service when you were 25 or 30 years old, you haven’t seen a market when you have to deal with higher interest rates. It’s always basically been free money,” Gulke observed. “It’s the same way with our young farmers. If you’re 40 or under, you don’t know what kind of effect rising interest rates can have on our economy.”
Listen to Gulke's full comments about interest rates, Argentina, and the cattle markets on Farm Journal Radio here:
In Argentina, growers and exporters are also adjusting to some big economic changes as their new president moved quickly to cut export taxes and address currency issues.
“They had a 30, 40, 50 percent devaluation (of the Argentine peso), and that meant huge benefits for their farmers internally,” Gulke explained. “Corn got 70% more profitable in terms of pesos for the Argentine farmer. When he sold the grain in dollars and brought it back home, he got 70% more for his corn that he would have otherwise. So those guys holding did well.”
And those Argentine growers have plenty of corn, wheat, and soybeans to sell, after stockpiling their crops as a hedge against inflation rates as high as 40% in 2014.
“This is going to take a long time to unravel given the fluctuation of the currency,” Gulke predicted.
But the good news was that the market seemed to take much of the week’s news in stride.
These developments “should have been negative, but whenever we get a positive result from a negative comment or a negative result, you have to step back and say, ‘Maybe it was all in the market,’” says Gulke. Soybeans, for example, closed up 15 on Friday, despite all the bearish numbers from South America. “That tells us that something is up … Is the market now telling us we can take all the soybeans Argentina can sell because El Nino is going to curtail production or lack of operating funds is going to curtail production somewhat in the U.S. and elsewhere in the world?”
Where do you think the markets are going? Share your thoughts in the comments below or on the AgWeb Discussion Board.
