Sowing and Reaping

Many wonder what will get the US economy moving again. For them I have one word:

Wheat.

Our farms are about to experience perhaps their best harvest ever. A combination of ideal weather at home, crop failures abroad, and increasing global demand for cereal grains have created a perfect anti-storm, in which high prices and record yields combine in a cash-flow bonanza for the American farmer.

Some of the beneficiaries of this prosperity will be the usual suspects: states like North Dakota and Nebraska, which already have the lowest unemployment in the country; farm machinery makers like Deere and Case New Holland; or seed-engineers like Dupont. These companies supply the raw materials that farmers need to turn sun, rain, and seeds into a global harvest.

But a secondary beneficiary will be our financial system. Banks across the Midwest will be awash with deposits, and their loan quality will improve as local economies see the stimulus a growing economy provides.

It’s likely that demand will continue to increase, even with higher prices. Globalization means hundreds of millions of new consumers can afford to buy more meat, which means more demand for grains.

A stronger agricultural sector and increased global trade may provide the spark that the US economy needs to get out of its funk. If the grain-belt gives us that, you should thank a farmer.

Douglas R. Tengdin, CFA
Chief Investment Officer
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