Dr. Michael Swanson
Chief Agriculture Economist - Wells Fargo
Economic Volatility has
Consequences
Michael Swanson Ph.D.
Wells Fargo Ag Industries
Wells Fargo Ag Industries - 33
Right on the trend
Wiped out by the volatility
Wells Fargo Ag Industries - 4
How quick can you UNLEARN?
  US is the “best” market
 Per capita income and wealth
  Stro...
Wells Fargo Ag Industries - 5
Forecasts? What are they worth?
Wells Fargo Ag Industries - 6
We will gift wrap it for them
Wells Fargo Ag Industries - 77
The two that really drive the
markets
Wells Fargo Ag Industries - 8
Why do “we” have $80/barrel oil?
Wells Fargo Ag Industries - 9
An invisible sun
  Cost of capital
  US: allocated (mostly) by market returns
  China: al...
Wells Fargo Ag Industries - 1010
Economic volatility will be
rising. What does that mean
to your strategy?
Wells Fargo Ag Industries - 1111
Define “economic volatility”
The difference between the
actual and the average.
Wells Fargo Ag Industries - 12
Daily distribution of price change
Wells Fargo Ag Industries - 13
It’s not your imagination
Wells Fargo Ag Industries - 14
How it entered your world
Wells Fargo Ag Industries - 15
It’s now easier to be wrong than ever
Wells Fargo Ag Industries - 16
What’s driving volatility
  Globalization and integration
  Speculators
  Electronic tra...
Wells Fargo Ag Industries - 1717
You	
  don’t	
  solve	
  a	
  system
Wells Fargo Ag Industries - 18
Planning can’t be about predicting
  Drunken monkeys throwing darts
  Risk management
  ...
Wells Fargo Ag Industries - 19
“Blinded by the lately”
Wells Fargo Ag Industries - 20
How does the US economy grow?
  Long-term GDP growth is 2.4%
  Output grows with inputs a...
Wells Fargo Ag Industries - 21
If you don’t have productivity …
Wells Fargo Ag Industries - 2222
So	
  what	
  have	
  we	
  been	
  	
  
distor6ng	
  lately?
Wells Fargo Ag Industries - 23
We’re all Keynesian now …
Wells Fargo Ag Industries - 24
We’re on sale – really marked down to move
Wells Fargo Ag Industries - 25
Free money forever – Is that good guess?
Wells Fargo Ag Industries - 2626
A quick show of hands.
Who thinks they know what
they’re doing?
Wells Fargo Ag Industries - 27
(Un?)intended Consequence
Agriculture
Land
Values
Energy
Input
cost
Output
value
Expected
P...
Wells Fargo Ag Industries - 28
Can the tail wag the dog?
Wells Fargo Ag Industries - 29
Corn: Market maker
Wells Fargo Ag Industries - 30
After 2 years – Marginal Growth
Wells Fargo Ag Industries - 31
Where does the growth come from now?
Wells Fargo Ag Industries - 32
Iron cows at work
Wells Fargo Ag Industries - 3333
So where does it leave me?
Wells Fargo Ag Industries - 34
Increasing volatility has consequences
  Margin management v. “guessing”
  Risk managemen...
Wells Fargo Ag Industries - 35
The “perfect” kills the “good”
  Hitting a “hole in one” is always luck
  Scratch golf = ...
Wells Fargo Ag Industries - 3636
When the environment
changes, it’s the adaptable
that thrive not the well
adapted.
Swanson
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Swanson

  1. 1. Dr. Michael Swanson Chief Agriculture Economist - Wells Fargo
  2. 2. Economic Volatility has Consequences Michael Swanson Ph.D. Wells Fargo Ag Industries
  3. 3. Wells Fargo Ag Industries - 33 Right on the trend Wiped out by the volatility
  4. 4. Wells Fargo Ag Industries - 4 How quick can you UNLEARN?   US is the “best” market  Per capita income and wealth   Strong markets and institutions  No one is perfect   However, US is not the market maker
  5. 5. Wells Fargo Ag Industries - 5 Forecasts? What are they worth?
  6. 6. Wells Fargo Ag Industries - 6 We will gift wrap it for them
  7. 7. Wells Fargo Ag Industries - 77 The two that really drive the markets
  8. 8. Wells Fargo Ag Industries - 8 Why do “we” have $80/barrel oil?
  9. 9. Wells Fargo Ag Industries - 9 An invisible sun   Cost of capital   US: allocated (mostly) by market returns   China: allocated (mostly) by connections   You don’t need to ship something to distort the market   Import substitution   Technology transfers   Currency exchange trends have big cycles
  10. 10. Wells Fargo Ag Industries - 1010 Economic volatility will be rising. What does that mean to your strategy?
  11. 11. Wells Fargo Ag Industries - 1111 Define “economic volatility” The difference between the actual and the average.
  12. 12. Wells Fargo Ag Industries - 12 Daily distribution of price change
  13. 13. Wells Fargo Ag Industries - 13 It’s not your imagination
  14. 14. Wells Fargo Ag Industries - 14 How it entered your world
  15. 15. Wells Fargo Ag Industries - 15 It’s now easier to be wrong than ever
  16. 16. Wells Fargo Ag Industries - 16 What’s driving volatility   Globalization and integration   Speculators   Electronic trading   Portfolio models   Biofuels policy   Love it or hate it – that’s your business   Major input and now a major output   Sheer randomness
  17. 17. Wells Fargo Ag Industries - 1717 You  don’t  solve  a  system
  18. 18. Wells Fargo Ag Industries - 18 Planning can’t be about predicting   Drunken monkeys throwing darts   Risk management   Own   Rent   Compensated risk   Theirs   Ours   So what does it mean to ME?
  19. 19. Wells Fargo Ag Industries - 19 “Blinded by the lately”
  20. 20. Wells Fargo Ag Industries - 20 How does the US economy grow?   Long-term GDP growth is 2.4%   Output grows with inputs and productivity  Larger labor pool 0.4%  More capital invested 0.7%  Productivity gains 1.3%
  21. 21. Wells Fargo Ag Industries - 21 If you don’t have productivity …
  22. 22. Wells Fargo Ag Industries - 2222 So  what  have  we  been     distor6ng  lately?
  23. 23. Wells Fargo Ag Industries - 23 We’re all Keynesian now …
  24. 24. Wells Fargo Ag Industries - 24 We’re on sale – really marked down to move
  25. 25. Wells Fargo Ag Industries - 25 Free money forever – Is that good guess?
  26. 26. Wells Fargo Ag Industries - 2626 A quick show of hands. Who thinks they know what they’re doing?
  27. 27. Wells Fargo Ag Industries - 27 (Un?)intended Consequence Agriculture Land Values Energy Input cost Output value Expected Profit Cost of food 30% 100% Global economic growth
  28. 28. Wells Fargo Ag Industries - 28 Can the tail wag the dog?
  29. 29. Wells Fargo Ag Industries - 29 Corn: Market maker
  30. 30. Wells Fargo Ag Industries - 30 After 2 years – Marginal Growth
  31. 31. Wells Fargo Ag Industries - 31 Where does the growth come from now?
  32. 32. Wells Fargo Ag Industries - 32 Iron cows at work
  33. 33. Wells Fargo Ag Industries - 3333 So where does it leave me?
  34. 34. Wells Fargo Ag Industries - 34 Increasing volatility has consequences   Margin management v. “guessing”   Risk management is never free   Deleveraging has a financial cost   You need to   “own” your program   not “rent”
  35. 35. Wells Fargo Ag Industries - 35 The “perfect” kills the “good”   Hitting a “hole in one” is always luck   Scratch golf = skill + practice
  36. 36. Wells Fargo Ag Industries - 3636 When the environment changes, it’s the adaptable that thrive not the well adapted.

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