As a continuation from last week, here are some more points and perspectives from the Agriculture at a Crossroads conference held at Clemson University in South Carolina. Dr. Ed Seifried from Lafayette College gave some great insight into the current economic status.
Economically, the United States has moved and has evolved into a period of “Great Moderation.” Since 1984, variation in economic indicators is down 64%. Periods of expansion in the economy have been longer and more robust, and recessions have been shorter and shallower. At the time of the conference in early May, experts indicated that there was a 50% chance of a recession. Factors that supported a short shallow recession were the Great Moderation Theory’s influence, the Federal Reserve aggressively cutting interest rates, economic stimulus payments, and a weak dollar boosting tourism, agricultural and industrial products. Factors indicating a more protracted recession include a housing market that is likely to be in the doldrums for two to five years, higher unemployment above 7%, and high oil prices. It was cited that $100/barrel oil has little multiplier effect because the monies are sent to the oil-exporting countries. Another factor to watch is the consumer spending weakness in an economy where 70% is based upon services and retail.
The quote of the conference was, “If it grows too fast, it’s a weed.” One only has to examine the Dot-com speculative boom, urban and suburban real estate, and now oil and agricultural commodity prices as examples of the speculative bubble. Currently hedge funds that must be balanced have seen agricultural commodities as a good investment, which has influenced prices. Experts and panelists were in agreement that agricultural commodities were in a late stage bubble. Weather, the value of the dollar, and energy costs were seen as the three leading risks in the next 12 months.