I am sitting in my office completely drawn to CNBC’s coverage of the capitulation of the US economy. The story is riddled with denial, accusations and lack of clarity. The question that keeps on getting raised in our office is, “how does this affect our company.” The DOW is down 700 points and maybe headed to 8500 according to Jim Cramer of CNBC. Realistically, I do not think that we will really know the full affect of this issue on the Canadian farm for 3 – 5 years but two concerns come to mind immediately.
There are two Canadian industry concerns that come to my mind:
- North American Beef consumption–Beef has traditionally been known want instead of a need. Basically, when a family goes shopping for groceries are they more likely to buy bread of beef? Based on the trend of increasing feeding costs, as an industry we need the price of beef to rise not fall. As feeders we need profits not a round of $100 head losses. A downturn in beef consumption would not help our cause at all. If the American consumer has a shortage of free cash flow it only makes sense that eventually demand will slide and cash bids will shrink.
- Ag Lending constriction–Canadian banks are significantly capitalized but the reality is that I think they may take a heavy reactive reaction to the US banking implosion. Would you be surprised if Canadian Ag lenders tightened Ag lending requirements because the US banking system imploded…..me neither. In the past when Enron and the wireless industry fell, the lending institutions tend to clean up their portfolio of loans which will not help Ag accounts.