The first half of 2016 is now part of history. Economically, the agriculture industry is still lively and active; however, most commodity prices are suppressed, challenging even the best of managers. As we enter the second half of the year, there are several variables to monitor moving forward.

The Federal Reserve

Many experts expected 175,000 to 200,000 job gains in the May employment report.  However, with only 38,000 job starts reported, the June employment report will be extremely critical. As a result, the strong probability of an interest rate increase is on hold. In addition, because this is a national election year, it is highly unlikely there will be more than one increase in interest rates.

Outcome of the “Brexit” Vote

First, was this a surprise? Two days before the vote, I was in Spearfish, South Dakota, at a banking school where I told a banker the Brexit was unlikely. Then, on a red-eye flight to Denver, the news of the British vote was reported at 3 a.m. EDT. I was surprised; and I believe this may be the beginning of major political discontent worldwide. There is such extensive unrest in many population segments against large government and institutions. The emotional explosion through social media can certainly accelerate the situation. Politically, as well as economically, this could be a very volatile summer and fall throughout the world. 

Next, does the British exit from the European Union matter? Well, first it weakens the euro and positions the dollar to be a safe-haven currency. Of course, a strong dollar continues to be a headwind to U.S. exports. Massive inventories of agricultural commodities, a strong dollar and weakened global demand are negative indicators for U.S. agriculture, energy and manufacturing industries.

Collectively, the economies of Europe are actually larger than the U.S. economy. This area of the world is important to international trade such as China to Europe and the U.S. to Europe. The shockwaves of the Brexit will most likely place Great Britain in recession sometime in 2017. It is also likely to lower the GDP by up to 1 percent in the European region, where economies are already struggling. This decline could, in turn, shave one-half percent off global economic growth.

Next, the Brexit vote could become quite a process or something like a soap opera. One decision will lead to more discussion with drama and emotions running high. It will take considerable time to re-write regulations, policy and trade agreements. No doubt, the world will watch each turn with interest. Maintain a close eye on Scotland and nations in the European Union as talks continue. A total breakup of the EU would be a major shock to a fragile world economy. Additionally, it will be interesting to watch how this situation impacts the immigration strategy in this area of the world and globally.

In the U.S., it is likely that policies will trend more conservatively regarding international trade and immigration reform. The Trans-Pacific Partnership (TPP) will be a forefront issue in debates. The outcome of this agreement will have major implications for U.S. agriculture, particularly in the West Coast states.

Another variable to watch is the world equity markets. If markets continue to decline, this would create a wealth effect in reverse. Specifically, that is when the value of stocks, equities and other assets decline, causing investments and spending to decline as well. With much of the wealth held by the senior demographic, this could potentially be devastating; changing the spending and investment patterns of seniors and others who then become more financially conservative.

Finally, this political tsunami is quite out of the Central Banks’ control. Stimulus policies of the past have limited available options. As a result, the world is starting to see the true impact of political dysfunction in rich nations across the globe. This is a classic 50- to 75-year cycle where economics and technology change the political arena. Consequently, this cycle creates uncertainty, challenges and a re-shaping of economic and political landscapes.

Crop Reports

Carefully monitoring crop reports is a high priority on the strategic watch list for the rest of the year. Clearly, crop production is critical to the supply and demand equation. Price indicators in the crop sector, as well as for feed costs in the livestock sector, will also be extremely important. Maintain a global outlook as the southern hemisphere will be moving into planting season. Of course, the weather along with “hot” money from large funds can provide temporary spikes and dips in commodity prices.

The Economy

Since the last recession, the U.S. continues to move through months of business expansion, nearing its 90th month. A recent survey of bankers attending the Louisiana State University (LSU) Graduate School of Banking suggests a recession in the U.S. sometime in 2017, following the 2016 presidential election. This, of course could impact the competitive balance between livestock sectors including beef, poultry and pork. The Ag Globe Trotter will certainly maintain heightened surveillance of the domestic economy and any potential, early indicators.

The Election

A straw poll of many lenders at LSU’s recent Graduate School of Banking class showed Trump over Clinton with any Libertarian candidate coming in last. Interestingly, in a more informal poll, 20 percent voted for “none of the above” instead of any listed candidate. Regardless of the candidate, I predict that the millennial generation will elect our next President, either by voting or more importantly, by staying home. In actuality, the elections to watch are those for the U.S House and Senate seats along with state gubernatorial elections. The outcomes of these elections will determine the balance of governmental power. Especially if you live in a swing state area, get ready for some ugly, nasty campaign ads. They may just give you a reason to shut down media and enjoy some quiet reflection.

We are in the wild world of global economics and politics, complete with advanced technologies and constant information! This environment will create havoc and mayhem; but more importantly, opportunities for those who plan, execute and monitor. In summary, my advice for the second half of 2016 is to closely monitor your financials, manage and execute on your risk management programs and maintain communications with key family members, partners, lenders and advisory teams.