Much of U.S. agriculture is tied to the economic fates of Japan and the emerging BRICS nations of Brazil, Russia, India, China and South Africa. Over the next six months, careful observation of these regions of the world could predict the health of the U.S. agricultural economy.
First, China's fourth quarter 2011 economic growth, measured by GDP, grew at its slowest pace in two years. For the year ending 2010, growth was 10.4%, while 2011 year end growth was 9.2%, and it is projected at 8.2% going forward. This weakening of China, which has been a growth engine for U.S. agriculture, could be the foreteller of weakening commodity prices, particularly for soybeans. China’s slowdown is partly due to the European economic crisis. Keys for producers to watch are a 7.5% level of growth or below in China, and whether the European Union, China's largest trading partner, goes into recession.
Also, home prices, particularly in urban areas in China, are slowing as China has put the brakes on the economy thru higher interest rates, higher down payments, and tightening of bank capital requirements. A correction in China's economy and real estate market would be a black swan that could potentially impact agricultural markets in the U.S.
Japan, the world's third largest economy, has just announced a downgrade in growth projections. Many economists projected that Japan’s economy would grow at 2%. Now estimates are negative as Japan is feeling the strain of the slowdown of trading partners in Asia, Europe and North America.
A close watch of these economies will be maintained in this column since it could impact prices and input costs to U.S. agricultural producers, particularly on the grain side. There are no truer words than “one must think globally and act locally.” Stay tuned!
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 firstname.lastname@example.org.