ANALYSIS - Jim Wiesemeyer, senior VP of Informa Economics, said that the emerging BRIC countries, not existing advanced economies, are where the economy and agriculture's future growth will come from, writes Sarah Mikesell, TheCropSite senior editor.
Advanced economies, which are primarily the US, Germany and Japan, accounted for more than half of the world's economic growth rate from 1970 to 2008. Then from 2010, a wind of change began, and Wiesemeyer said it's easily forecasted out to 2016 - showing that those advanced economies will account for less than one-third of the growth in the future.
"This is the beginning of the rise of the rest," Mr. Wiesemeyer said. "We're in the Golden Era of agriculture, and this plays into the positive side because anything pertaining to soybeans, corn, wheat, oil and meat is in a growth market."
This isn't necessarily bad news for the US and advanced economies - there's still opportunities. He said US investors on the East Coast look upon US agriculture as one of the top three growth areas, not just for this year or next year but the next few decades. They can see what's coming.
"Cash on the barrelhead with China and other Asian customers - this is not like the go-go days of the 1970s, when it was a house of cards built on cheap credit to the then Soviet Union," he said. "This is real, and we're going to have a two-speed recovery, with primarily the BRIC countries within these emerging markets - "B" for Brazil, "R" for Russia, "I" for India, and "C" for China. And now I add an "S" for South Africa."
The BRIC countries are only about 30 per cent of the world economy, but they're 60 per cent of the world's growth. In this growth structure, agriculture benefits from the demand-pull markets that growth creates. The potential short-term problem is if outside events, either in the US, Europe, or the Middle East, dethrone the growth, Mr. Wiesemeyer said.
Europe's Lack of Confidence
Mr. Wiesemeyer said a farmer recently commented, "Jim, you know Europe is worse than the US right now, and they need an out, but they're in a recession right now with the Euro zone, let's just hope that it's a tepid recession."
The Euro is higher than the dollar because a currency is typically based on two primary things, other than confidence in the country - its' interest rates and money supply, he said. The interest rates are higher in Europe than in the US, and money supply is a driver of currency.
"In 2007-2008, the Fed had to throw everything they possibly could to build up liquidity, because bankers became bankers again and didn't loan nearly as much," he said. "From a currency perspective, a trader will go long the Euro and chart the Dollar, just for the interest rate."
Italy is another country to watch. Mr. Wiesemeyer shared that during a trip last year to Italy, about 80 per cent of the places he went would not allow him to use a credit card.
"So they give you a good deal, but they're not reporting the income," he said. "That's going on throughout Europe - a lack of confidence. So watch Italy."
Italy is the third largest economic force in the EU. Germany and France have a lot of influence in Italy's banking system. If Italy goes down significantly, that is a signal of more problems to come, he said.
China's 8 Per Cent
China - there's that 8 per cent Gross Domestic Product that keeps coming up. If it were to go down below 8 per cent, that's the first signal that China may not buy as many US products as we expected, Mr. Wiesemeyer said.
"China is about 15 per cent of the world's GDP and 20 per cent of the population," he said. "Within about a decade, India will exceed China in population. One third of India is under 14 years of age. So they're going to be a ferocious growth market if they can get their unemployment and illiteracy back together."
US Debt Getting Bigger and Bigger
The US national debt is now over $15.2 trillion and for everything over $15 trillion, the red ink on the deficit has grown over 8.5 per cent annually over the last decade. And the economic growth of the US hasn't even been half of that, so there's a hole being dug that won't be easy to climb out of.
He said to top it off, the debt is about to get worse, because there's more debt ahead. Assuming the US Congress extends the majority of the 2001 or 2003 Bush tax cuts, the debt is going to increase.
"If they don't do anything else in the next 10 years, the debt will grow $4.5 to $11 trillion," he said "Here's the kicker - there's $54 trillion coming in unfunded liabilities, 60 per cent of which is Medicare. About 90 per cent of a person's healthcare costs are within the last nine months of their life. So you can see the significant drag that's coming up."
Congress is trying to solve the debt problem, by holding off until the lame duck session of Congress.
"I don't know how long the bond market is going to give Washington after the election - a year to a year and a half?" he said. "But if bond traders think that the US is not serious after the election, then interest rates could go higher, faster than anyone realizes right now."
He said the fierce debate over the depth and scope of the government is screaming that the US needs tax reform. Right now, over 60 per cent of Europeans don't pay taxes, while in the US, it's about 51 per cent.
"With tax reform, they have to spread and allow more people to pay taxes that are now not paying them," he said. "To show that they have a contribution and have a meaning, but the government now has the fear, at least for some republicans, that we're getting into an entitlement society mode, similar to but different than Europe."
Jim Wiesemeyer spoke to attendees of the Commodity Classic in Nashville, Tennessee, USA in early March.
Further ReadingYou can read more from Mr. Wiesemeyer's presentation at the 2012 Commodity Classic by clicking here.