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“If you are offered a seat on a rocket, don’t ask which one, just get on!”

The sentence of the title is a quote from Sheryl Sandburg, COO Facebook. Contrary to all the headline grabbing scary stuff about dictators with missiles and itchy fingers, we appear to be entering a period of wide spread global economic recovery and potential prosperity that will drive big benefits to billions of people and some very special good news for pork producers worldwide.

Tuesday 24 October 2017 (1 years 1 months 19 days ago)

One of the biggest reasons for this is the dramatic drop in energy prices which has been sustained worldwide in the last couple of years. This has not only reduced the cost of pork production and processing but has decreased the cost of shipping and exporting activities. Another big reason is the accompanying drop and flatlining of nearly all other commodity prices (most important for livestock producers, the feed ingredients) which cause the cost of pork production to be both rock stable and well below the trend of the last decade. Of course, crop producers are not liking this much as you might suspect.

There are two important things (among others) that always accompany sustained global income growth. First, more meat is consumed (per capita). This means new meat eaters are added as their income rises to threshold levels and more meat plus more expensive sources and cuts are demanded by current consumers. This means people begin to switch out of dominant, low-cost chicken to incremental increases in beef and pork in diets. Second, the rate of population increase is reduced in areas where family sizes were determined by the need for human capital. More money, more wealth, more meat produced and consumed.

The World Bank is forecasting global income to advance at the rate of over two percent and to increase from that in 2018. Almost every region of the world is participating in this income increase with much of Asia leading the advance at over six percent growth. Even Russia is emerging from a couple of years of negative income growth (recession) to a forecasted 1.4 percent surge into the closing months of this year.

After an unprecedented period of economic stimulus by central banks in developed countries which has driven the cost of money (interest) to almost nothing, there is still no sign of the predicted inflation which normally begins to arise as investment increases and then overheats. This is important because most central banks begin slowing economic growth if they see evidence of emerging inflation. The US Central bank is signaling that it will raise rates in small increments in a regular fashion even though it cannot explain why inflation has not emerged (the normal key indicator the US Central bank uses to decide whether to slow the economy with rate increases or speed it up with reductions).

An additional driver of this period of growth is the policy decision to reverse the trend in ever increasing government regulations on business, especially in the United States which is tentatively being copied in other parts of the world. Not only have whole sections of business dampening government agencies in the US been completely neutered but early in this administration, an executive order was issued requiring that two existing regulations be eliminated for every new one adopted. This allows the advance of important regulations but forces a prioritization which was not present. In the US, the so-called GIPSA rule was just discarded by the USDA. It would have made it easier for contract growers to walk away from their contracts, amend contracts and have a markedly reduced standard of proof that harm had been committed.

Collectively, these many things have led to an increase in global consumer confidence. People have come to believe that the current situation is not a passing fluke but the emerging state of things which is likely to persist. Namely, that the economic environment is good, worthy of investment by both business and personal investors and the continued purchasing of goods and services by consumers (which drives continued growth).

The challenge to longstanding trade agreements to be renegotiated is also causing a sense of “new possibilities” along with a reasonable amount of hand-wringing and heartburn by current participants in those agreements. Shaking things up a bit provides the possibility of a period of new entrepreneurial activity, new production and therefore new employment and income.

The upcoming overhaul of the US tax code with the potential repatriation of business profits being stored in tax havens all around the world is already built-in to the market exuberance. Let’s hope that gets done well and spreads to other countries where high tax rates force the rational stashing of earnings in other countries with low tax consequences and therefore hurt wealth producing nations and their people in many unfortunate ways.

I am keenly aware that this is the kind of article which normally precedes an economic downturn and crash. This is pure superstition (I think) but my apologies in advance if such a thing should happen.

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