Ongoing global policy disputes, “especially China,” coupled with a slowing global economy are limiting the demand for U.S. grains, rice and cotton commodities. Achieving fiscal, trade and monetary policy dispute resolutions on many of the highly contentious issues will be a multi-year process at best; therefore, grains, rice and cotton producers should be conservative in their 2019 market price expectations and anticipate that these markets will likely trade in a range. Achieving successful negotiations on most contentious policy dispute issues will be a multiyear journey, not a near term destination. Here are nine policy considerations that will affect markets.
- Fiscal and Trade Policy Global fiscal and trade policy disputes impact on global economic and market activity is a key factor defining U.S. and global central bank monetary policy actions. Monetary policy will remain data dependent and highly responsive to economic conditions.
- Monetary Policy Outlook Presently, any additional increase in the Fed Funds Rate restricts economic activity, so Fed monetary policy tightening or raising interest rates near term constrains U.S. growth and competitiveness; therefore, interest rates will remain low and supportive of U.S. and global business activity.
- U.S. Recession Avoided and Global Economic Momentum Maintained 2019 U.S. and global economic momentum will be maintained, but at a price. The price: First, continued building U.S. and global debt; and, Second, rising business and living costs will outrun income.
- Markets Rebalancing 2019, broadly speaking, is a period of global currency, bond, equity, and commodity market rebalancing. Why? Even without ongoing global policy disputes global governments and central banks have a primary objective of extending positive global growth and limiting the ongoing global slowdown.
- Supply Exceeds Demand Grains, rice and cotton are facing a stiff headwind of global supply continuing to exceed demand. This is a function of many major policy disputes, technology advances, increased production, processing and handling efficiencies, and other factors.
- Rising Costs and Consolidation Business costs will rise, forcing continued farm and business consolidation. Business efficiency, structure, market implementation, etc. are all highly critical to a successful and viable ongoing operation.
- Land Value Remain Firm Large and small investors, speculators, financial institutions, etc. all seem to agree, near-term, that farmland remains a good investment.
- Taxes Rising Politically, voters remain more supportive of spending than balancing the budget, which is a historical truth through time; therefore, city, county and state governments will continue raising taxes in their own politically expedient way.
- Market Impacts What are the likely impacts on global currency, bond, equity, and commodity markets? I will reintroduce my market considerations slide show next week and talk in more detail about individual markets. Most global markets from currency, bond, and equity, to commodity markets are going to define a range and trade within that range.