May has been a volatile month for ag futures as markets have digested spring weather and its effect on the pace of plantings. Rains finally fell over the southern Plains and Kansas City wheat led the grains sharply lower. December corn has fallen over 40 cents for the month on healthy planting progress and favorable conditions for emerged corn. Soybean futures have rallied and plummeted, oscillating up and down based on the ever-changing perception of the precarious supply and demand situation. Weather and the stocks and usage fundamentals are of course not new drivers of the agricultural commodity markets, but they have received the most attention in our market news and commentary lately. What may be somewhat overlooked as an important feature of agricultural markets is the current state of conditions in the global economy.
The health of the global economy has an important bearing on agricultural markets. Currency exchange rates influence the relative attractiveness of imports and exports for various trade economies. The availability of credit and the associated servicing costs affect decisions over inputs that help determine crop yields. Consumer spending on food is guided by changes in wages and incomes. The relative performance of financial and commodity markets influences the investments of index fund traders. All are but a few of the many links between agricultural prices and economic condition.
There are several indicators that are easy to follow and which provide a pretty good picture of macroeconomic health. Some of the most regularly cited economic vital signs are gross domestic product (GDP), income level, unemployment rate, trade balance, and inflation. These are helpful pieces of data, but they should make up only part of any examination since they are primarily lagging indicators, which reflect changes in the economy after they occur. Lagging indicators can be partly viewed as having resulted from changes in leading indicators, which can help alert us to economic troubles ahead. Changes in the stock and bond markets, the housing market, business sales, and consumer confidence can all be leading symptoms of a larger underlying condition.
Stay tuned for a weekly blog update that will allow us to check the pulse of economies around the world. Let’s see if what we find has any implications for U.S. agriculture. We will keep some of these leading and lagging indicators in mind as we put various countries under the microscope. A four part series will assess the economic health of major agricultural producers and consumers. The series will focus on Latin America, the European Union, the Black Sea Region, and Asia. Check back next week for a look at the economies of our major corn and soybean export competitors, the Latin American agriculture giants Brazil and Argentina.
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