Seemingly non-ag events as diverse as the beginning of the Russian presidential election cycle and the potential for auto parts sanctions could end up having a surprising impact on grain and oilseed prices in 2012.
As a result, Gregg Hunt, a broker with Archer Financial Services, advises producers to keep their eye on events that are "under the radar."
Hunt noted at the Top Producer Seminar in Chicago that this year begins the election cycle for Russia’s Prime Minister Vladimir Putin, who is running for a third term as president. The election increases the odds that Russia might impose grain export controls.
Also in this region, as much as one-third of the winter wheat crop in Ukraine and Russia might have to be replanted due to the recent cold snap. The replanted acres will most likely go to corn, barley and sunflower seeds, Hunt believes.
China has a high level of grain inventories and up until now "has had its hands in its pockets" on booking further orders, Hunt noted. "China’s housing market is a house of cards," he added, speaking to growing weakness in the country’s economy. Hunt said that Chinese economic growth this year of 8% to 8.5% is really no growth at all, in part because of all the bad loans government lenders are keeping on their books.
One U.S.–Chinese issue that could impact grain prices is whether President Barack Obama restricts imports of Chinese auto parts to aid Ohio and other states in the Rust Belt. "This is a hot, hot [election year] topic," Hunt said. If the U.S. imposes such sanctions, the Chinese might retaliate with sanctions on U.S. grain and oilseed exports, he added.
Globally, Hunt is looking for major belt-tightening due to the debt crisis that started in Greece, spread to Italy and Portugal and now has expanded to other countries. "The same thing will happen here," Hunt believes, although it is not likely to take place in the U.S. for one to two years due to this fall’s presidential election.
Cutting the U.S. deficit is an enormous issue, and the only way Hunt sees for the government to accomplish it is to spread the pain equally, "so everyone is getting a haircut. When the government starts cutting [benefits] for you that’s when the rubber meets the road," he said.
Cutting government spending will by no means be easy, Hunt explained, noting that 35 to 36 states get more revenue from Washington than they pay in taxes. Some of those states get as much as $4 back for every dollar they send to Washington.
On another topic, Hunt said that grain companies are feeling the pinch because farmers have put up so much storage and producers don’t have to sell, due to their strong cash position. As a result, grain companies have had to tighten basis.