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Of Intere$t

Tony English

by Tony English
Chief Financial Officer

At the time of this writing, consensus economic forecasts appear to indicate a relatively brisk 3% GDP growth for the US economy in 2010 and then actually slowing to around 2.5% in 2011. Consensus employment numbers predict little improvement in jobs well into 2011 with unemployment seen as hovering around the 9.5% level for the immediate future. What I find interesting about these consensus forecasts is that the Federal Reserve, who arguably has the best and most complete information, is materially more optimistic about growth and jobs. This is especially true for 2011.

One of the possible ramifications of this divergence of views is that the markets could be improperly positioned for future Federal Reserve actions. If in fact the Federal Reserve is correct in their views that economic growth and job creation are upon us, it would follow that inflation will soon be an important factor in future interest rate levels. Producers certainly could see significant volatility in both input and output commodity prices as markets try to determine what effect commodity demand, inflation and the value of the dollar (as influenced by interest rates) have on the big picture.

Of course all predictions become mute if there are any “shocks” to the system. Everyone seems to agree that the US and world economies are still very fragile. Additionally there is the ever present geo-political risk that seems to hover over any talk of sustained growth. Thus agricultural producers, like anyone who is significantly involved in commodities, are urged to recognize volatility risk and how that potential volatility could affect their operations.

From where we stand today, dealing with growth and even a little inflation seem to be good problems to have. It is important to realize however that the macroeconomic landscape could look significantly different in the next 12 to 18 months. Those who are able to manage the related risks and volatility will have a competitive advantage over those who chose not to realize these market place realities.

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