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National and Global Observations in an Interconnected Economy

As the world economy becomes increasingly interconnected, it’s crucial to recognize the interplay between global and domestic factors. Although our focus tends to be local, international influences can significantly impact our domestic markets and shipping considerations.

Interest Rates

Businesses worldwide are interested in understanding the trajectory of interest rates. Until early 2022 businesses using debt were in a comfortable position where capital costs were a much smaller part of their business plan. Whether it was term or revolving debt, the cost of capital was at historic lows, and conversations were happening around rising inflation, the cost to build or upgrade and lead times. The Federal Open Market Committee’s actions have driven borrowing costs to the highest level since 2001. We’ve also seen the fastest increase in incremental rates since 1988. What the Federal Reserve recognized is unparalleled inflation not seen since the 1970s and 1980s. Some see this as a delayed course of quick action to correct. Whether right or wrong, too aggressive or too late, there are signs that this corrective action could be having the indicated effect. In May 2023, the benchmark interest rate surpassed the inflation rate as determined by the Consumer Price Index (CPI) for the first time since October 2019. In addition, job creation, wage increases and other measures, including the CPI, are being closely watched. While the cost of commercial debt has been a main focus, other areas to consider are home mortgage, credit card, commercial real estate, auto and student loan rates.

Student Loan Debt

Student loan forgiveness and repayment restarts could have a major impact on consumer spending. There is an estimate of up to 40 million student loan borrowers that will need to restart repayments. After several cycles of pushing back the date of restarting payments, those that owe will need to start paying in September 2023. While this has been tied up in the Supreme Court those challenges are now exhausted with limited exception on forgiveness. One of the main considerations is the impact that those 40 million borrowers will have once they start making an average payment of $400 per month. Those have been added discretionary dollars to this point. What impact does that have on future spending? In summary, up to $12 billion dollars per month could be coming out of household budgets versus other spending. It’s hard to believe repayment has been paused since March of 2020 and the loss to the Federal government in paused interest payments is estimated at $195 billion dollars.

Around the Farm

Usually weather doesn’t have a huge impact on consumer spending or what happens within the walls of a processing plant. Parts of the Midwest have been battling a lingering drought. According to the August 1, 2023 U.S. Drought Monitor report, approximately 24% of the country, including Puerto Rico, is grappling with various stages of drought. While not uncommon as a percentage for the time of year, the more surprising note is the intensity of the drought in major crop growing states, especially the Western Corn Belt. While some rain recently reached these areas, the question is what impact it may have on feedstocks. The southern and southwest parts of the U.S. are facing seasonal dryness as well. While commodity prices have come down and milk prices have trended back up, the economics on the production side may not be favorable to some as we get into the end of the year and early 2024. Given that the cattle market is still strong, does that, combined with weather issues, move more herds out of production? One other item of interest is the number of dairy heifer replacements. Earlier this year inventories were at their lowest point since the 2000s. There are several reasons why, but the herd won’t come back overnight, which could limit milk production growth. If demand for milk and milk products grows or stays constant, along with some of the other challenges above, it’s possible the milk supply situation could evolve to the deficit side in time.  

Global Dynamics

Exporting dairy products has bolstered the dairy industry with cheese, whey and lactose exports reaching record volumes in 2022. While China is a significant buyer, Canada, Southeast Asia and Mexico are more prominent purchasers. Canada and Mexico accounted for over a third of the total or almost $3.6 billion dollars. I’m optimistic that the demand will continue especially as production areas like the European Union and New Zealand consider the direction of their dairy economy in a changing global marketplace. Geopolitical tensions are probably here to stay for some time. Relationship are being strained and others emboldened. Russia’s invasion of Ukraine is one of those factors that seems to be realigning alliances. When I first wrote about the impact and outcome I didn’t think almost 18 months later there would still be an ongoing conflict with no end in sight. Over the last few weeks it seems like the war has taken an even worsening tone by weaponizing the food supply by damaging physical commodities and grain handling infrastructure. Most of the damaged grain was destined for countries including Africa, China and Israel. This is just one example of the destruction in early August. Food is a basic human staple. One of the observations seen during COVID about the supply chain, including the food supply chain, is that there tends to be a precarious balance.

In an increasingly interconnected world economy, it’s imperative to consider both global and domestic factors. Interest rate shifts, challenges facing the consumer, agricultural challenges and geopolitical tensions all play their roles in shaping our economic landscape. As we navigate this complex terrain, we must remain vigilant to the ripples of change that can emerge unexpectedly, regardless of location or time.

For additional information and resources on the Agribusiness Industry, visit



Senior Food and Agribusiness Lending Specialist
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