No matter which side of the political fence you might have been on, most of you were shocked last Nov. 8 when Donald Trump was elected president of the United States.
That was also true for the financial markets, which reacted strongly to the news the reality TV star was leading in the Electoral College vote. The Dow Jones Industrial Futures fell 800 points and the dollar was down 2,000 points.
“Our family was gathered together to watch the election results, and I said, ‘that looks like a buy,’” said Arlan Suderman, commodity analyst with INTL FCStone. “Within hours, both were up strongly, and we saw really a Brexit 2.0-type response in the marketplace.”
Suderman, a speaker at the Agricultural Council of Arkansas’ annual meeting in Little Rock, said the markets reacted sharply to the news because of the uncertainty generated by both the surprising returns and a general lack of knowledge about what the president-elect might actually do when he takes office.
“So President-elect Trump’s first role and responsibility was to restore confidence because the markets don’t like uncertainty, and, when he stepped in front of the microphone that night and gave a conciliatory talk that sounded presidential to the markets, they saw that as starting to restore certainty.
Focus on policies
“That allowed the markets to start focusing on – and this is Wall Street – his policies for business, including tax and regulatory reform. Then they said ‘Who’s he going to appoint to his cabinet? Will that give us more confidence?’ and to this point the markets are saying his appointments are giving them more confidence.”
Nonetheless, Suderman, chief commodities economist with INTL FCStone, said a lot of uncertainty remains – about the world economy, the world markets and Trump himself – that could impact commodity prices in the months ahead.
The one big question mark concerns global trade; that is, what impact will the new president’s policies have on world markets. “Donald Trump does not have a political history for us to go back and say ‘OK, he says this but then he does this,’” said Suderman.
“We simply don’t know. The two theories are 1) he’s positioning for the negotiations and we’ll end up with better trade. The other is that that’s what he really wants to do – have a trade war. (The reality is) somewhere in between. Where will we end up? That is still the unknown as we go forward.”
Suderman said this country’s $20 trillion in debt, fiscal policies that are creating negative interest rates in Europe and Japan and the continued move toward the break up of the European Union are making it difficult for the commodity markets to break out of their slump.
Euro vs. the dollar
“Why am I talking about this? Because the Euro is the major currency that goes up against the dollar,” he said. “And, if the Euro is in trouble, which I believe long-term it is, then that’s going to push the dollar higher, and when the dollar moves higher the fund managers sell commodities because the dollar-denominated commodities have trouble competing on the global markets.”
When the dollar is moving higher, U.S. producers have cheap currencies among their competitors, which makes their products cheaper to buy, and the companies that buy U.S. commodities have cheap currencies. They have to convert those into dollars to buy U.S., and when they do that makes U.S. products more expensive.”
The recent Organization of Petroleum Exporting Countries agreement to limit production will also be a factor in the commodity markets – if the OPEC members actually follow through on their pledge. Higher oil prices last spring led to a brief run-up in soybean prices for U.S. producers.
Suderman “tag-teamed” with Ted Nelson, another INTL FSCtone analyst, who gave the outlook for specific commodities in his presentation. The problem for most growers in 2017 will continue to be the world has too much corn, cotton, rice, soybeans and wheat for prices to overcome uncertainty in those world markets.
Roby Brock, a political commentator from Little Rock who also spoke at the meeting, asked the Ag Council members who among them thought Trump would be elected president. Only two or three members of the audience indicated they expected a Trump victory.
“I was one of those two or three who raised their hands,” said Suderman. “I think there’s a pattern in our history that every eight years or so we need a change. That’s what I was picking up as I traveled around the country prior to the election.”
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