How do you prepare your farm for a Trump-led America?

Everybody always says, “we’re entering uncharted waters here,” but heck, folks, this time we’re truly entering uncharted waters.

A Donald Trump presidency could mean almost anything for commodity prices, interest rates, market access and world economic conditions, and farmers need to be prepared to deal with unprecedented uncertainty during an already challenging time.

Here’s what the Trump era could mean:

  • trade wars
  • Keynesian government spending
  • more world conflicts
  • fewer world conflicts
  • a big recession
  • a big economic boom
  • blocked market access
  • easier trading relations

How do you set up your farm to deal with this contradictory range of possibilities?

These aren’t abstract issues. The way the Trump administration and the Republican-controlled houses of Congress sort out their differences into something approximating a new economic policy will directly affect the finances of every Canadian farmer.

Think about interest rates: how vulnerable to interest rate changes is your farm?

If Trump gets his way and launches a massive infrastructure spending program, inflation could spike and interest rates could soar.

If he provokes trade wars and spurs a global recession, interest rates could remain at near zero for years to come.

That’s a risk that needs to be hedged, but how do you do that? 

A recession tends to be bad for commodity prices as world demand slumps. An inflationary spike tends to boost commodity prices as investors rush for hard assets that keep their relative value as money cheapens. 

Some economists are now fearing that 1970s-like stagflation is likely to reappear.

How do you hedge for that range of possibilities?

How vulnerable is your farm to the American border being shut to Canadian pigs, cattle or wheat? After a couple of years of relative border peace, especially with country-of-origin labelling eliminated, access to the U.S. market is once again something nobody is taking for granted.

Does anyone think that a bold populist, who owes his electoral success to the Midwest and Great Plains, won’t mess with agricultural trade? 

Sticking it to Canadian cattle, pigs and grains has often brought fulsome praise from farmers of the same commodities south of the border. 

On the other hand, most of the things foreigners like us fear about Trump could melt away if he turns out to be the fabulous deal-maker he claims to be. Sure, he talks a tough game on trade, but maybe after some bluster and a high-visibility summit or two, he’ll be able to march out with a new deal on Canada-U.S. trade that changes only a few details, declare victory, and we’ll be back to clear sailing for the foreseeable future.

The problem with dealing with populists is that it’s impossible to predict what they will do with either policy or action. Populism is a gut-based outlook that doesn’t lend itself to principle or predictability.

We have entered an era of unpredictability and uncertainty, and markets hate uncertainty.

How do farmers prepare for this? 

Beyond being cautious and taking nothing for granted, there isn’t much to do. The ball is on the south side of the border, and we’ll have to see how they play it.

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Comments

  • Harold

    Ed, would you be as fearful as you are now if Trump were leading Canada, or would it be somewhat refreshing instead. If Trump say’s that NAFTA is a bad agreement, is it possible that it is a bad deal for Canada a well? Since the NAFTA agreement was enacted, between Mexico and the USA, Canada has been sued the most and has paid the most in damages. Does this by any means describe a Canadian politician, or a Canadian, who understands the agreement that they signed? Is this a good deal?
    Canadians have lost more than what we have gained from NAFTA, and we should be focused there instead. The only “uncharted waters”, are the waters of a thorough examination of the agreements that we sign, and the accounting for our losses. Incredibly, we keep illusions alive instead. NAFTA has destroyed some of Canada’s infrastructure and no doubt there will be hardships until it is rebuilt.

  • Dayton

    I would by stock in RB auctions as a precaution.

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