Economies around the world are starting to break. We are having quite a run. The question in my mind is how long can and will this run last? As the United States continues to create jobs and the world economy outpaces recent expectations. What is driving this and what is my thought process? As I reflect, my focus has been on inflation or lack thereof. Why is there a lack of inflation with the amount of stimulus the Feds have pumped into the economy? History shows energy has been a major component of inflation. Today, this has been a drastically different story than history shows. Shale production is poised to push US oil production to ten million barrels a day, topping a record set in 1970. This new production record probably won't last long. The US government has forecasted that we will climb to eleven barrels a day by late 2019. With oil over 64 dollars a barrel, there is enough margin for many US producers to finance drilling and dividends for shareholders. Overturning the prohibition of exporting oil, enacted following the 73 OPEC embargo by Congress in 2015, is also having an impact. The overturning of prohibition has allowed the United States to export 1.7 million barrels of oil and 3.8 cubic feet of natural gas daily. This allowance has terminals used in the past for importing, being overhauled to allow for exporting. US production and economy would have driven sharp demands for crude, leading to spiked prices and inflation, prior to the overhaul. However, absent this trigger, I believe the US stock market still has room to run.
How does this affect our producers? I believe it will continue to support land values and higher input costs. The offset is a higher demand for a protein, which in turn leads to demand for corn and soybeans. Outside of a natural disaster or geopolitical event, I do not see farm margins improving in the short run. Those who play in the Ag sector, need to operate in a very efficient environment.