These predictions first appeared in a Pro Farmer newsletter. We think they provide food for thought, so we asked our corporate sibling (Pro Farmer and Farm Journal are owned by the same company) if we could share them with you. Here you go:
U.S. dollar: Short- and medium-term, the dollar will be generally weaker. The Euro is likely to consolidate between 1.35 and 1.40 through 2010. There will be large U.S. deficits (around $1 trillion in 2009) and near zero Fed funds.
Interest rates: Prime rates will bottom at 4.27% in 2010, which means mortgages will not get that low unless the government or Congress establishes a special program. Thirty-year Treasuries will trade for less than 5% through the next couple of years.
Inflation: Stronger global growth, especially for infrastructure-related commodities (steel, concrete, energy, etc.), will spur inflation to return.
Consumer price increases will average near 3.8% in 2009 and 3% in 2010. Perspective: This modest consumer inflation relative to $75 to $100 crude, as an example, means margin pressures and an era of modern stagflation.
Food prices: Price gains during the past year were mainly marketing costs, not a result of food commodities. Proof: Even as food items have declined, food prices have stayed firm at 5% increases. Expect food prices to migrate back to 3% food inflation in 2009 and likely back to the more traditional less than 3% level by 2010.
U.S. economy: The recession will carry on through August 2009 or so (22- to 23-month event, about double the average), and the turnaround will be modest (hunkered-down consumer). The usual spurt out of recession is 3% gross domestic product (GDP) growth, but this time it will be more like 1%. We don't see 3% expansion until early 2010. If this is wrong, it is wrong on the conservative side, since the role of a big stimulus package will accelerate the economy much faster.
For world economy, watch China: China's economy (GDP) will be less than 8% for 2009 and around 8% in 2010. This may be too conservative of a number, in relation to its $600 billion infrastructure stimulus package.
Energy prices: There's a good chance for $75 per barrel crude oil by the end of 2009/early 2010. If growth is better than predicted, crude can get to $100 per barrel—depending on how much demand destruction took place, how much OPEC really cuts back and the balance between recession, slow growth and inflation pressures on consumers. Diesel: $2.80 to $3 average for 2009; near $4 in 2010.
Details: What appears to be a massive drop in energy demand has largely been a massive de-pipelining in the face of huge price declines and gloom-and-doom attitudes. When the economy turns, demand will be stronger than the market is currently thinking. Meanwhile we have done extensive worldwide damage to crude oil production development. Finally, OPEC will cut production as much as needed to firm up prices. By the time OPEC production cuts are really impacting the market, petroleum disappearance will be surging higher and non-OPEC production will be down. If we have a colder than normal winter, demand will get an additional boost.
Fertilizer prices: Weaker energy means weaker prices for fertilizer. Prices will come under continued pressure as retailers will be unable to maintain prices of high-priced inventory given the lower wholesale prices. But don't procrastinate too long; we are bullish long-term on energy prices, including natural gas, so nitrogen fertilizer prices will be moving up in spring 2009. While the nitrogen pipeline is full now, a run on product early in 2009 could lead to logistical problems.
Ethanol: Ethanol production may not be much more than the mandated Renewable Fuels Standard levels (less imports) given the current crude oil price environment, which limits what ethanol plants can afford to pay for corn and still maintain sufficient profitability. With cheaper corn, the prospect of improving energy prices from today's levels and the "green penchant" that ethanol limps along at modest losses and profits, the industry will be able to produce 10-plus-billion gallons and keep growing production to meet the mandate. A well-run company with adequate financing can make money producing ethanol in 2009, and most of the plants that are online are modern and efficient.
Estate taxes: A Democrat-controlled Congress will not let estate taxes go to zero in 2010 but instead will establish a $3.5 million exemption and 45% top rate to help pay for spending elsewhere or to reduce the budget deficit. New legislation will retain the date-of-death valuation rules.
Capital gains taxes: President-elect Barack Obama will push the top rate to 20% from 15% but will likely exempt gains on small businesses.
Trade policy: While some say Obama's pick for U.S. Trade Representative, former Dallas mayor Ron Kirk, will be like the Maytag Man (with nothing to do), watch Obama lead his team in a different approach in regard to reaching new agreements—and enforcing the existing ones. Democrats will finally get an expanded Trade Adjustment Assistance program. As for Cuba, it may take longer than many want, but a further freeing up of ag trade (and visitations and money sending) is ahead. The key will be whether Cuban leaders "give" Obama something to respond to—it takes two to tango.
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