It's All Greek to Everybody
May 05, 2010
Chore time for me isn't what it used to be when I was growing up on our eastern Iowa farm, but taking a little time to do horse chores in the morning gives me some time to think about the issues of the day. From time to time, stop by to share thoughts about some of the biggest issues impacting U.S. agricultural trade.
I was thinking…
... about several issues.
It's all Greek to everybody! For a few months, we've warned on the pages of Pro Farmer and at various seminars around the country that Greece's debt situation would eventually lead to a meltdown. That meltdown is happening today. Greece's two-year note is trading over 15%, there are riots in the streets of Athens (at least three people have died) and the threat of a domino effect taking down other economies in the euro zone is building. Today's protests are likely the peak of an emotional reaction to details of a planned austerity program for the people of Greece -- it's a "unified belt-tightening" that would undoubtedly lead to a lower standard of living. Also, the plan includes an increase in the retirement age from 61 to 63...and workers might have to give up some of their bloated vacation time. None of the "suggestions" are sitting well with the people of Greece.
Next up is Spain... or Portugal. Following that will be Italy. The International Monetary Fund (IMF) bailout plan for Greece really isn't a plan just for one country. It's a plan that would infuse money into several European countries. So...because this is an international fund, a bailout for Greece means we're all contributing to the management of the Greek debt load. And perhaps worst of all, the dominoes are falling all the way to the U.S., where equity markets are reflecting very low confidence in the IMF's bailout plan.
The markets are trying to manage the situation as well. The euro has plunged through support this morning, driving the U.S. dollar sharply higher. Investors are liquidating all euro-based investments and turning toward "quality." In this case, that's the U.S. currency. Do not take that as another sign of U.S. economic recovery. It's like we've been saying for several months: "Investors are buying the dollar not because it's 'good' here, but because it's 'worse' there." Still...the euro looks like it's headed lower to sharply lower and the dollar is headed higher to sharply higher. That is not good news for U.S. grain export potential.
The U.S. corn planting pace. Obviously, we're trying to put some perspective on what a record-fast planting pace for the U.S. corn crop means for crop prospects and the market. We've said for several weeks in Pro Farmer that a record-fast planting pace does not guarantee above-trend yields, a quick drydown and a quick harvest...but it is the first step in that direction. So the 2010 growing season is setting up to be a test of just how well the new technology we've got in today's seed can perform. Until proven wrong, we're assuming a yield above last year's 164.9 bu. per acre.
But some growers simply won't plant corn until May 1. Reason: These growers assume that planting corn in April just moves up the replant date! We'll find out later this week if some of the crop needs to be replanted. Temps are expected to be chilly...but there's no clear risk of frost damage on the corn crop that is emerging at a record-fast pace.
The market impact is clear. Spring crop risks are nil (so far) and traders assume the fast planting pace will result in an above-trend national average yield.
Keep an eye on the equator. Sea surface temperatures (SSTs) have already cooled enough to end the latest El Niño episode. Key now will be if the SSTs level off or if the momentum behind the transition from El Niño to El Neutral leads to La Niña. Longtime weather and crop watchers know a quick transition from El Niño to La Niña can result in a too-dry Midwest growing season. I won't make any weather predictions...but if La Niña is established in June, we'll need to get ready for some late-season stress on crops and marketing plans.