International trade risk impact on agriculture industry

International trade risk is one of the top issues facing the agriculture industry today. Whether it is discussions over the Trans-Pacific Partnership (TPP), climate and environmental change, food standards or consumer trends, agriculture is the “point dog” for change. Because food, fiber and fuel are basic needs, they can quickly become politicized and used as a negotiation tool between governments in power struggles. In fact, in some cases, issues over basic needs can be the catalyst for military action in both developed and emerging nations.

Currently, the strong U.S. dollar is inhibiting our export potential which directly impacts agricultural profits. As other central banks around the world attempt to stimulate their economies, as well as their export advantage, the U.S. dollar continues to gain strength.   However, it is not about the strength of the dollar, but the duration of the strength of the dollar that really makes the largest impact. 

As a result of conflicts in places like Ukraine and Syria, economic sanctions were placed on Russia; which also impacts the bottom line for agriculture. Meat, milk and grain were curtailed in a region that represents the world’s eighth largest economy. Russia’s continued military action in the Middle East will only prolong the impact on the agricultural industry.

The emerging nations’ economic slowdown is now in full swing. One half of the emerging nations are at or near recessional growth levels. The eight-five-three rule in gross domestic product (GDP) growth rate is applicable. Specifically, when the emerging economies are growing above an 8% growth rate, this indicates strong demand for commodities. A 5% growth rate is indicative of growth moderation and growth under three percent usually means a recession for commodities worldwide. The unofficial numbers would indicate that we are in the recessionary range.

Agriculture and rural America have prospered from global growth and trade. Now, the opposite applies due to the economic downturn. Historically, agriculture has led the rest of the economy going into an economic downturn. Will this historical pattern hold true again for the U.S.? Well, only time will tell, but as a producer, remember to watch these global events and patterns in order to adjust your strategies and positions to take advantage of presented opportunities.

TAGS: Marketing
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