Commodity Insight: Keys for farmers, ranchers during recession

It is official. The National Bureau of Economic Research, a trade group that determines when recessions start and end, claims one began in February.

According to CBS News, “The economists said employment peaked in February and fell sharply afterward, marking the beginning of the downturn as cases of COVID-19 metastasized throughout the U.S., soon killing thousands, shutting down millions of businesses and sparking stay-at-home orders for much of the nation’s population by mid-March.”

CBS News went on to state, “The unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions, according to the NBER.”

If a recession did begin in February, it ended the longest economic expansion in history and came just as the coronavirus pandemic began to spread.

Historically, three forces can bring the stock and commodity markets to their knees. One, is a war, another is higher interest rates and the third is a recession.

Today, there is no war and rates are headed lower, not higher. In fact, a few days ago, the Federal Reserve stated U.S. interest rates would remain near zero through 2022.

In other words, the Fed would not hike rates for another two and a half years. It may actually lower them.

But this past week, the Nasdaq rose to a new all-time historic high. The Dow at one point this week was within a meager 15% of a new all-time high.

Since March, stocks have enjoyed one of the most bullish “rallies back” in history. Yet, the United States is in a recession.

Here are some old quips defining a recession that I have always enjoyed:

“How do you tell the difference between a recession and depression? If your friend loses his job, it’s a recession. If you lose your job, it’s a depression.”

“Thanks to the recession, I’m back on my feet again. The bank took my car.”

“If the bank returns your check marked ‘insufficient funds,’ you call them and ask if they meant you or them.”

Quips aside, here are some thoughts from CNN.business.com regarding what may lie ahead if a recession has truly arrived: "The global economy is plunging into the worst peacetime recession in a century, according to the Organization for Economic Cooperation and Development. A second wave of coronavirus infections would lead to even more disruption and economic scarring. 'By the end of 2021, the loss of income exceeds that of any previous recession over the last 100 years outside wartime, with dire and long-lasting consequences for people, firms and governments,' said OECD chief economist Laurence Boone."

When the Fed announced it would not hike rates for two and a half years, the first thought that popped into my head was, “Wow, they see something they don’t like.” When the Fed anticipates financial trouble, it never hikes rates.

By the same token, the Fed is more than willing to hike rates when things are rosy, bullish and enthusiasm exuberant. The Fed is notorious for taking away the punch bowl — hiking rates — just as the party is getting going.

Moving forward and considering the United States is now in a recessionary environment, it means those making a living from and depending on agriculture one way or another need to hone their marketing skills.

The key to success for farmers and ranchers is marketing much more so than production. Production pretty much takes care of itself. Marketing, on the other hand, requires patience and information.

The current economic environment is the most severe facing the United States in 90 to 100 years. But the Fed is also doing more to turn things around than any other time in history.

There is no doubt in my mind it will get the job done and lead the United States out of the recession. In the process, there will be money-making and money-saving opportunities that have yet to rear their head.

And that is why patience needs to be practiced.

Yes, it is official, a recession has arrived, but with it comes a host of market opportunities. Please consider the special offer for my twice-a-day newsletter, Commodity Insite.

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The Fed is spiking the punch bowl in an effort to start a new party because we are in a recession. If times were robust and exuberant amid inflationary pressures, they would remove the punch bowl.

Let’s hear it for the Fed!