Important Outside Market Influencers for 2012
Looking at the effects of globalization over the past ten years, the jury is still out on whether “it’s a small world after all” is such a good idea. Producers I talk to often struggle with the correlation between the politics in Europe and the price of corn in the Midwest, or how conflict in a Middle East oil field can affect the price of soybean oil.
Regardless of your feelings on globalization, the point is that it’s not going away, and countries must work together now more than ever to create an accord for the years ahead.
In this article, I would like to focus on two of the many outside market factors that will affect the price of your grain next year. Being aware of them now will help you follow them in the months to come, which will help you do your scenario planning for price moves in any direction.
Chinese economic growth as no surprise has risen by leaps and bounds over the past ten years. And it’s no wonder: Many companies continue to outsource portions of production to China in favor of cheaper labor and less stringent environmental rules. With all of the outsourcing, the Chinese economy has boomed and a middle class has been created.
With the boom has come a fear that the country has grown too fast. Over the past year, Chinese officials have been trying to tame growth in efforts to avert an economic bust down the road.
China is facing a unique situation: They want growth to slow, but they want it to slow at their deemed rate. You see, China must maintain 8% growth at a minimum in order to keep the wheels turning. (The U.S. is currently growing at 1.7%). However China does not want to grow too much faster beyond that 8%, as that would fuel inflationary fears. Anything less than the 8% growth target would allow for high unemployment rates, which would result in hungry people who might turn to revolt and protest. China wants political, economic and social stability.