TOP FARMER WEEKLY PERSPECTIVE 07/08/2022 BY BRYAN DOHERTY
Are Markets Factoring in a Recession, and What Does it Mean for Farmers?
Although there is no evidence a recession is at hand (generally two consecutive quarters of declining gross domestic product), many believe the way the stock market and now commodities have plunged in value recently have already priced in a recession. To further lean in the direction that a recession is already upon us is the continued uptrend of the U.S. dollar, which has reached its highest level since 2002. Rising interest rates have the world flocking to the haven of the U.S. dollar, where one can invest in fixed-risk bonds and earn a positive return.
Exasperating the notion of an economic slowdown are labor shortages, supply disruptions, the war in Ukraine, and rolling Covid lockdowns in China. When connecting these dots and adding inflation that shows no sign of slowing, it does not take actual GDP data to confirm what most of the world already believes. The Federal Reserve is playing catch-up, raising interest rates at a pace not seen since the Reagan Administration. This is more evidence that inflation will cut into consumer demand.
What does it mean for farmers? Over the last several weeks, commodity prices have come under a vicious attack by what appears to be significant liquidation of long positions, especially by managed money. The mentality of tight supplies is being replaced by declining demand concerns, as consumer dollars are not going as far. In particular, over the last two weeks, concern of global food shortages has taken a back seat to “who can afford it?”. For farmers, this implies price rallies may be limited moving forward, despite tight supplies.
Setting price targets, using sell stops under futures, and buying puts all have their place for the products you produce. Shopping for input prices will be as important as ever. Stay in contact with your vendors for inputs, as they may have special price incentives. Connecting with the buyer of your products may also pay dividends, as periods of basis improvements are likely. Bottom line, continue to connect with those who can help you achieve your goals. Good communication, sharing ideas and concerns, and talking strategy to navigate exceptionally uncertain times is as important as ever.
If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.