Global Demand Slips in Shadow of Fiscal Cliff

December 28, 2012 10:00 PM

Marketplace indicators point to a coming downturn amid fiscal cliff negotiations in Congress, uncertainty in Europe and weak global demand, says Jerry Gulke, president of the Gulke Group.

"We heard about China going 8% to 10% to 12% a year, and of course some people thought protein was going to have the increase at 7% to 10% a year compounded," Gulke says. "Well, now we’re kind of thinking maybe it only needs to go up 2%. And so maybe we are catching up with the supply side of this, that the market is saying, I don’t think the risk is to the upside as much as it is to the downside."

While soybeans enjoyed a small end-of-year rally, corn and wheat reverted to market patterns last seen in late June.

Looking ahead to 2013, Gulke expects a tax increase for the agriculture sector. He says farmers need to consider both what they can write off on their taxes and their ability to maintain cash flow to pay for expenses such as principal on farmland.

"Maybe we used a lot of our cash in these good times to buy land," Gulke says. "Ten thousand dollar-an-acre land, you pay $5,000 down on it and suddenly, if we get into a position where we see $4 corn and $11 beans for some reason for a year or two, are we going to make enough taxable income to make those principle payments without having to finance the equity we already have?"

Listen to Gulke’s full analysis:

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