Recently, I heard a well-respected banker indicate that a dashboard pertaining to business and macroeconomics can be very important for agriculture producers when making strategic decisions. These dashboards are a tool to assist in evaluating and confirming the short- and long-term impacts of major decisions.
A macroeconomic dashboard of the U.S. and global factors is critical in the business world where you must think globally but act locally. Let’s discuss two of my favorite factors that will provide insight into which way the wind is blowing in the agricultural economy.
One gauge of U.S. and global economic growth is to examine the direction of copper prices. This commodity is used in many agriculture and construction projects. Historically, this metric was called “Dr. Copper” by leading economists. In recent months, copper prices have been between $4 and $5 dollars per pound. As a rule of thumb, if this variable is above $3.50 to $3.80 per pound, the global economy is growing. When copper prices are below $2.50 per pound, global growth is suppressed. One has to be careful of countries such as China stockpiling copper to circumvent supply chain disruptions. Stockpiling can artificially increase the price of copper.
Next, consumer sentiment is a factor that needs to be scrutinized. About 70 percent of the U.S. economy and nearly 60 percent of the world’s rich nations' economies are driven by the consumer. Each month the Index of Consumer Sentiment is published by the University of Michigan. A number above 90 indicates a confident American consumer. If the number is below 75, confidence is low.
The longest period of economic expansion in U.S. history ended with the COVID-19 pandemic. During this 128-month period of growth, the Index of Consumer Sentiment was over 90 for 97 percent of the time! The index is currently in the low 70s in the United States. This could be a foreteller of the economic status of inflation, interest rates, and the growth of the U.S. and global economy.
Why is consumer confidence important to agriculture? Consumption of meat, milk, and many of the products in the livestock industry is often influenced by consumer confidence and desire. Consumer confidence indirectly impacts the grain industry because of livestock feed consumption and demand for ethanol.
While these two factors do not answer all of the questions, they bear watching very closely. Keep a close eye on your dashboard post-government stimulus and as geopolitical and central bank philosophy changes occur.
Source: Dr. David Kohl, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.