Economic crises are popping up around the globe like out-of-control wildfires. The European sovereign debt crisis is definitely an issue. The northern Euro sector is providing financial support for the southern tier of Europe. An implication to producers is that the dollar is strengthening to the Euro, down from 1.61 to 1, to 1.20 to 1. This in turn has lowered oil prices and flooded U.S. treasuries with investor funds as a safe haven. For producers with loans on the LIBOR rate, a 25-basis-point increase will foretell higher interest costs. The Euro sector’s challenges may be a prelude to sovereign debt issues to be faced here in the U.S. and in Japan, the second largest economy in the world.
The lead economic indicators such as the LEI and PMI are still strong through the publication of this article. This is the result of stimulus not only in the U.S. but the $3 trillion world stimulus on a $38 trillion dollar economy worldwide. This has impacted oil prices and agricultural commodities, particularly in the crop sector.
Other indicators such as housing starts, factory utilization and unemployment rate are still in unfavorable territory. This is a sign that long-term economic structural issues have not been solved. That, combined with long-term entitlement issues such as Social Security and health care, not only here but in other developed countries, are signs of slow but volatile times ahead.
One issue on the horizon includes increased taxes from the local to federal levels. In the crosshairs will be producers, individuals and couples called “HENRYs,” that is, High Earners Not Rich Yet. HENRYs generally earn $60,000-400,000 of net income annually. This group will take the brunt of tax increases, decreasing their ability to accumulate wealth like older generations.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]