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Will a weaker world economy doom U.S. grain exports?Will a weaker world economy doom U.S. grain exports?

Ag Marketing IQ: Though most assets post gains for 2024, the economic forecast is clouded by the specter of retaliatory duties and unprecedented uncertainty about the direction of interest rates.

Bryce Knorr, Contributing market analyst

December 23, 2024

5 Min Read
Bull and bear figurines on world globe
Getty Images/ATU Images

Interest rates hover below 3% as the final curtain comes down on 2024. No, wait – that’s what will happen in the year ahead – or is it 2026? Maybe 2027?

Farmers prepaying expenses aren’t the only folks scratching their heads. The Federal Reserve appears just as itchy as financial markets trying to ring in the new year without drowning in too much good cheer.

While the S&P 500 Index rode an early Santa Claus rally in December that ended just a few ticks shy of 6,100, the ball drops on 2025 amidst unprecedented uncertainty about the direction of interest rates, unemployment and the economy. Did we mention a government shutdown?

Sure, the looming second act for President Donald Trump created some of the drama. But a boatload of conflicting data and weakening growth prospects around the world were just as much, if not more, in play, which helped push the U.S. dollar to its highest level since November 2022. Sharply lower rates, which once looked inevitable to revive a faltering economy, now appear anything but – at least in the U.S. Meanwhile most other countries languish.

Graph of 2024 change of different assets from open to close

Risky policy gamble

The Fed and other central banks typically try to control inflation with higher interest rates, risking growth by limiting how much profits and wages pump money into their economies, stoking demand that fuels higher prices.

Related:Will Brazil get its corn planted?

But commodity inflation also can be driven by supply shocks – think 2012 drought or Russia’s invasion of Ukraine. The latest turmoil in the Middle East affected both supply and demand, though worries about growth tampered rallies.

Inflation doomed Joe Biden’s presidency. And officials around the world are falling like dominoes, from Canada to Europe and Asia – and beyond. Some economists compare the environment to the Asian market meltdown of the 1990s.

While a few commodities benefited for a time – nearby gold hit $2,800 an ounce right before Halloween – corn, soybeans and crude oil each lost nearly half their value off recent longer-term highs.

Little wonder the big winner of 2024, by a landslide, was Bitcoin. The crypto currency pushed as an alternative to the greenback increased its value by some 157% during the year, completing a seven-fold surge from 2022 lows. For comparison, think $70 soybeans.

Graph of annual gain (loss) of selected assets from 2000-2024.

Tariff and demand fears

Currencies of a country tend to follow the opposite trajectory of its economy, so the strong dollar reflected the belief that a pro-business and growth administration would be a boon for corporate profits. But warning signs from some of the data out this month hinted the opposite fate for U.S. growth, raising concerns around the world that the Fed ultimately will slash rates. Such action, if coupled with U.S. tariffs would kill U.S. imports, crippling our trading partners, friend, foe or in-between. A weaker world economy or retaliatory duties could doom U.S. grain exports to China, among others.

Related:There’s gold in that farmland!

Bitcoin aside, this thinking reigned in overall fluctuations by a baker’s dozen of widely traded hard assets. The average of these commodities into last week was a monumentally ho-hum 5.6%. Annual high-low ranges for individual contracts were also modest. Livestock and metals were the only contracts posting gains for the year, other than the dollar and S&P.

Graph of annual trading range - selected assets final close vs. open for year.

Fed cuts rates

As for the future, participants in the meeting on monetary policy in Washington last week showed a crack or two in their solid wall of previously unanimous votes, first for “lower for longer” and then pivoting to “higher for longer” and then maybe back again. This time four participants appeared to disagree with the decision to cut the target for short-term Federal Funds rates by one-quarter of 1% to a range of 4.25% to 4.5%. One participant went so far as to do so publicly – a resounding breach of etiquette in the white-shoe world of the Fed.

Related:Raise a cheer for volatility

In the market, the few traders still at their desks ahead of the holiday displayed little interest in another increase at the Jan. 31-Feb. 1 Fed meeting. They instead put their money on no change – a “pause.” The one that refreshes?

Betting on Federal Funds Futures saw just a 50% chance rates would be more than another quarter of one-point lower a year from now than they are today.

The Dots – market slang for the participant’s’ individual forecasts – beg to differ. The Dots put the rate for 2025 a full percentage point lower, with another three-quarters of a point reduction coming by the end of 2026, with the rate long-term at 3%. While expecting inflation to return back to its 2% target by the end of 2027. Persistent unemployment above 4% and agonizingly slow economic growth would be needed to put the inflation genie back in his or her bottle.

Market Analysis 101 suggests this is a mixed bag for growers – if it comes true. That’s a very big “if.”

Lower interest rates would be good for land prices and those borrowing for operating costs, machinery or land. The weak dollar that follows lower rates could – a very big could – give grain demand, and thus prices, a boost from increased exports. Imported goods, though, could also become more expensive.

So, buy that French champagne soon. My sources tell me the good stuff is quite reasonably priced.

Graph of projections by fed officials at December 2024 meeting on monetary policy.

About the Author

Bryce Knorr

Contributing market analyst, Farm Futures

Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and Commodity Trading Advisor. A journalist with more than 45 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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