While 2020 has just begun, many lenders are already recognizing an essential truth: 2020 will be a year of change. Dramatic, uncertain change.
That’s not necessarily welcome news for anyone in financial services, but it can hardly be avoided. Here is a look at just a few of the things we expect will drive this continual change — not only through 2020 but into 2021 as well.
The U.S. trade war with China has reached an agreement — in theory — with the joint acceptance of Phase One of last year’s trade agreement. However, skeptics remain, waiting for China to follow throughon their half of the deal.
At the same time, billions of dollars of farm commodities provided to farmers across the country during the trade war are coming to an end. This month marked the final payment of $3.7 billion, down nearly 75% from 2019’s payout. The uncertainty of any future payments is creating an uncertain future for farmers. The support they have come to depend on is leaving while the added purchasing — as part of the trade deal — remains to be seen.
The recently signed-into-law trade agreement between the United States, Canada and Mexico could offer additional relief, however slight, as Mexico and Canada are already the two largest importers of U.S. goods. In fact experts predict a relatively modest economic growth figure of .35% or $68 billion.
The End of LIBOR
The pending conclusion of the London Inter-Bank Offered Rate (LIBOR) is fast approaching and many Asian countries appear to be behind in their preparations for LIBOR’s departure. In the wake of LIBOR’s disappearance, alternatives are being discussed and the suitable alternative remains unknown.
The Challenges in China
China, home to the world’s largest population and second largest economy had, in many ways, a difficult year in 2019. Its trade war with the United States has come at a time when the country is dealing with the devastating impact of African Swine Flu and the arrival of the coronavirus. African Swine Flu has completely shifted the balance of the world protein market and the impact of coronavirus could be even greater as more and more firms close their doors to business in one of the world’s largest markets. More than 25,000 flights to China have already been canceled and major worldwide companies are pulling their employees from China until the situation improves. The result is a stagnation of the Chinese economy at a time when the Chinese government is spending more and more money to combat and contain the virus.
Global Events Impacting the Agricultural Lending Market
With so much money invested in maintaining its economy and battling the coronavirus, how many resources will be left to honor Phase One of the U.S./China trade deal?
Grain Market Drops While Dairy Prices Rise
Fears surrounding China’s willingness or ability to follow through on Phase One of the trade agreement have been felt fully in the U.S. grain market. Following lower prices for much of the first quarter of this year, grain prices recently have begun to climb once again, emboldened in part by infusions of cash from the Chinese government to support Chinese businesses affected by coronavirus. Investors believe this is the Chinese taking a stand against allowing the virus to hamper their overall economy and responded positively in the market. At the same time dairy prices are rising after years of low results, in part because of potential access to the Indian market. The world’s largest milk producer, India has long blocked dairy imports to protect the jobs of some 80 million farmers. However, as the country seeks to improve trade relations with the United States, it is lowering its guard against diary imports though they will carry a 5% tariff as well as quotas. Producers must also show evidence the animals creating the milk have never fed on blood meal,tissue or organs as part of their feed. This news will benefit other agricultural producers as well, as India is dramatically reducing tariffs assigned to chicken imports. The tariffs will drop from 100% to 25%.
Staying Ahead in 2020 and Beyond
With so much change occurring early in 2020, the year is shaping up to be one of constant flux. For lenders this makes having the most up-to-date information more vital than ever. Agri-Access can help. Our team of dedicated experts stands ready to support you in growing your business no matter what changes the market presents.
Contact us today to learn more about how Agri-Access can work for you.