Global Economic Outlook

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The Minnesota Agri-Growth Council Annual Meeting and Speakers Conference is the organization’s premier annual event, bringing together key stakeholders in the food and agriculture industry from Minnesota and the Upper Midwest. As part of this program, Michael Swanson with Wells Fargo Bank presented on the Global Agricultural Economic Outlook.

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Global Economic Outlook

  1. 1. Global Economic Outlook Agricultural Risk Michael Swanson Ph.D. Wells Fargo Ag Industries
  2. 2. Economic and Agricultural Risk Everything is connected. We just can’t see how. Wells Fargo Ag Industries - 2
  3. 3. Is Economic Risk Rising?  Yes   Quantifiably   Emotionally  Drivers   Interconnected global markets   Policies   Domestic   Global  Implications Wells Fargo Ag Industries - 3
  4. 4. Not a physical constant Daily percent price volatility CME corn Wells Fargo Ag Industries - 4
  5. 5. Everything is connected … Wells Fargo Ag Industries - 5
  6. 6. Global factors – specific implications  Growth drivers   Population – minor   Income – major   Policy – wildcard  Suppliers   Interconnected markets   Opportunity costs  Implications Wells Fargo Ag Industries - 6
  7. 7. The most “predictable” factor High Low Wells Fargo Ag Industries - 7
  8. 8. Dubious assumptions – doubtful outcome Wells Fargo Ag Industries - 8
  9. 9. The income components – TBD Wells Fargo Ag Industries - 9
  10. 10. Dramatic growth – High Risk Why Now? How Much? Wells Fargo Ag Industries - 10
  11. 11. Follow the dollars Wells Fargo Ag Industries - 11
  12. 12. Net Trade by Category Wells Fargo Ag Industries - 12
  13. 13. Currency strength: Fundamentals v speculative Wells Fargo Ag Industries - 13
  14. 14. Who is our biggest trade partner? NAFTA Wells Fargo Ag Industries - 14
  15. 15. Is the shoe on the other foot? Wells Fargo Ag Industries - 15
  16. 16. Every product is unique story Wells Fargo Ag Industries - 16
  17. 17. Can the Euro Zone still function? Wells Fargo Ag Industries - 17
  18. 18. Polite Fiction Wells Fargo Ag Industries - 18
  19. 19. Why the 10 year reprieve? Wells Fargo Ag Industries - 19
  20. 20. What about the Euro? Wells Fargo Ag Industries - 20
  21. 21. How about China?More of the same: Uncertainty Wells Fargo Ag Industries - 21
  22. 22. What if China stumbles? Wells Fargo Ag Industries - 22
  23. 23. Talk about a murky relationship Wells Fargo Ag Industries - 23
  24. 24. The Chinese Trade Wells Fargo Ag Industries - 24
  25. 25. Net Trade Growth Wells Fargo Ag Industries - 25
  26. 26. If China was stock, would you buy?  Interactions with the global market   How much export growth could they get?   How much import growth can they allow?  Would the global markets stand a “sudden” devaluation?  What are their sustainable competitive advantages? Wells Fargo Ag Industries - 26
  27. 27. Slow growth better than no growth US Economic Factors Wells Fargo Ag Industries - 27
  28. 28. US economic key policy distortions  Fiscal spending  Monetary   Low interest rates   High money supply growth  Exchange rate   Weak dollar – strong exports?   Trade is a fickle source of demand  Regulation/Biofuels Wells Fargo Ag Industries - 28
  29. 29. What’s our real growth potential? Wells Fargo Ag Industries - 29
  30. 30. Volatility is an important as the average Wells Fargo Ag Industries - 30
  31. 31. Relative prices matter most  Labor   Increasing cost   Quality?  Capital   Falling cost   Increasing quality   Automation   Information processing  Add capital not labor Wells Fargo Ag Industries - 31
  32. 32. Jobs …We’re missing a decade of them Wells Fargo Ag Industries - 32
  33. 33. The investment is happening Wells Fargo Ag Industries - 33
  34. 34. Why they love their automation Wells Fargo Ag Industries - 34
  35. 35. Deliberate choices Wells Fargo Ag Industries - 35
  36. 36. Limitless demand ≠ Limitless Income Wells Fargo Ag Industries - 36
  37. 37. Taxes will go up as a percentage Wells Fargo Ag Industries - 37
  38. 38. They don’t buy because they love us Wells Fargo Ag Industries - 38
  39. 39. Bad economic policy  Simple answers are simply wrong   Keynesian?   Supply side?   Monetarism?  Complex systems   Structural change   Feedback loops   Random shocks Wells Fargo Ag Industries - 39
  40. 40. Don’t predict – plan on scenarios  Economic volatility will get worse   Price volatility will be extreme   Working capital per unit will need to increase   Margin management will be key  Asset Pricing   Real interest cost will increase   Global market for assets and cash flow  US agriculture needs to follow the links Wells Fargo Ag Industries - 40

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