That is a question — not a prediction. However, I vividly remember from economics classes in college that the simplest definition of inflation is “when you have more money chasing the same number of goods and services or you have the same amount of money chasing fewer goods and services.” I've never seen the latter happen, but the first scenario has been around all of my life.
What I do know, however, is that as the world's economic environment collapsed during September and October, practically every government in the world has been throwing money at the problem hoping to solve it; not just the U.S., everyone.
Eventually, this will come back as a resurgence in inflation that will impact real estate — both ag and non-ag — the stock market and the commodity market. The question really is not if this will occur but when — which is a much more difficult question to answer.
The world is never going to be the same again. Blame can be thrown everywhere, starting with Congress for failing to oversee the financial and derivatives market. Sharply rising crude oil prices wreaked havoc with many industries. I'll also point a finger at index funds and the lack of enforcement of speculative limits on these funds by the Commodity Futures Trading Commission, which allowed large blocks of speculative money to push up energy prices, which then pushed up grain prices far beyond what the fundamentals justified.
But forget the blame issue. Let's try to estimate what's going to happen in our businesses for the next five to 10 years.
PEOPLE STILL LIKE to spend money. That's a positive for the inflationary side. Demand from China and India, however, counted on heavily for the future growth of the world, has been severely damaged. Sharp increases in labor rates in China combined with sharp increases in raw material prices have literally brought its economic growth to a grinding halt.
I can assume that they will continue to feed their population at a higher level that has been established in the last two years. But because of financial constraints, this growth is going to slow down or stop. That kills the long-term bull argument that many have used for the continuous growth in U.S. agriculture. The current growth is being offset by genetic improvements in yield, and without the additional growth, prices are going to stagnate.
The bottom line: It is time to be more realistic in price projections and profit expectations. The entire world went from the greed phase in mid-summer to the fear phase in October faster than ever deemed possible. Now it's time to start rebuilding.
How long will it take the demand base to start growing again? I don't know. I am confident in predicting, however, that with the current slowdown, the unemployment rate is going to continue increasing. It's going to take more tax dollars to support this crisis and for at least the next several months - if not the next couple of years - the tax bite may well offset the additional amount of money flowing into the system.
I'm also confident that the world is not going to have a surplus of $3.50 corn and $8 soybeans. Those prices are as cheap as $7.50 corn and $15 soybeans were too high. The market will find a happy medium somewhere in between. Five years from now I am also confident that everyone will look back at this time frame as a good buying opportunity in the stock market and in non-ag real estate.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.