Last December, it looked like 2001 could be a volatile year with higher commodity prices. The Commodity Research Bureau (CRB) was trending higher, and crude oil and natural gas prices were exploding.
This year was volatile beyond compare with six factors combining to drop commodity prices sharply lower into the fourth quarter.
Higher energy prices in late 2000 and early 2001 are the main reasons why the U.S. and global economies turned sharply lower in the first quarter of 2001.
The dot-com rally turned into the dot-bomb bust. The combination of lower stock values and higher energy prices resulted in consumers spending less. Corporate profits began to fall and the nine-year U.S. economic expansion came to an end. The slowdown in the U.S. spread throughout the world. This dropped demand in Europe, Southeast Asia and around the globe.
The foot-and-mouth disease scare destroyed livestock profitability in much of Europe and dropped U.S. feed grain demand. By mid-year, livestock profitability and feed grain demand stabilized and started to improve.
China's aggressive sales of old-crop corn before entry into the World Trade Organization (WTO) pressured U.S., and global, corn prices. This year started out being a demand-driven bull market. Low wheat prices and aggressive sales of feed-quality wheat by many non-traditional wheat sellers kept pressure on wheat and corn markets.
The super-strong U.S. dollar rallied from 108% to 121% in early July. This 12% increase in the dollar's value had most countries looking everywhere else in the world for feed grains, wheat, oilseeds and meat. The recent 5% drop in the dollar's value has been one of the positive factors affecting the increase of U.S. exports.
The Sept. 11 terrorist attack turned the slowing U.S. economy into a full-scale recession. Unemployment went up, stock prices and corporate profits went down. The Fed moved aggressively to drop U.S. interest rates.
Look for the U.S. and global economy to turn higher by the third and fourth quarters of 2002. The aggressive interest rate cuts by the Fed and the large increase in the U.S. money supply will likely lead to improved economic growth sometime in 2002. Get ready for the Fed to gear up to fight inflation again by late 2002 to early 2003.
China's entry into the WTO will likely slow exports of corn out of China and lead to even larger soybean imports. With South America increasing its crush capacity, look for a growing amount of whole bean exports to come from the U.S.
In 2002, look for a continued drop in energy costs for not only the U.S., but for other global energy buyers. Lower energy costs are helping U.S. consumers and ag exports. Almost all nations that buy U.S. farm products also import energy. As their energy bills go down, there's more money to buy food. Export demand started to improve in the fourth quarter of 2001 and is likely to improve even more in 2002 as energy prices stay low and global economies start to expand.
A drop in the U.S. dollar value is very likely in 2002 as Europeans start to print the Euro. Economic strength in Europe will likely lead to stronger European stock prices by global investors who are willing to diversify and buy into their economic growth. An improving global economy will be of great benefit to everyone, including farmers, consumers and investors, even if the dollar drops back to more of its historic value.
Odds are good that farmers in 2002 will get more money from the market and less from the government. Successful farmers will again be those who maximize yields, control input costs and make the right marketing and merchandising decisions.
Alan Kluis is president of NorthStar Commodity Investment Co. If you have marketing questions or want more information, write: NorthStar, 1000 Piper Jaffray Plaza, 444 Cedar Ave., St. Paul, MN 55101; call: 800-345-7692 or e-mail: firstname.lastname@example.org.