December has been busy for livestock markets. Several major announcements capped off the year in both the policy and market arenas. Next year will undoubtedly be one of transition. Some transitions have been on the horizon and are wrapped in uncertainty such as a new administration taking office. Others are still to come, but are fairly known such as the veterinary feed directive that will go into effect January 1, 2017. These will ultimately change how many livestock producers conduct business. Three noteworthy announcements came in the last three weeks of this year that will also add to a changing business landscape:
1. The Federal Reserve increased interest rates for the first time in 2016 by 0.25%, reflecting confidence in the U.S. economy. The Fed also released a new GDP forecast raising projections for 2016 and 2017 growth to 1.9% and 2.1%, respectively.
2. The long awaited GIPSA rule, coined “Farmer Fair Practice Rules”, was released revising legislation from 2010 and further clarifying actions that would violate Packers and Stockyards Act.
3. Seven major reports for the livestock sector were released last week from USDA-NASS, including Quarterly Hogs and Pigs, Cattle on Feed, Chicken and Eggs, Cold Storage, Livestock Slaughter, Poultry Slaughter and Milk Production.
Fed Finds Strength in U.S. Economy
The increase in interest rates was expected and raises the federal funds rate, the rate at which banks can loan money from each other, by 0.25%. The Federal Open Market Committee sited solid job growth and a smaller unemployment rate in recent months leading the committee to believe the economy has continued to strengthen. Inflation has also increased and is expected to rise to the Fed’s target of 2%. For folks in the country, this should contribute to higher savings rates, and higher loan rates. However, interest rates are still historically low, see Figure 1.
It may be tempting to look at this announcement as a negative, after all the price of money just increased. For those looking to expand or borrow money, it’s a little more expensive. But remember why we’re here. The Fed has only made this move based on stronger economic growth, higher job numbers and indication inflation is creeping back into the system. Growth in the economy could benefit producers in a much larger way by increasing consumption and offsetting the negative impact of raising interest rates. A stronger economy indicates consumers will spend more. This includes dining out more often and spending more at the grocery store in the form of more expensive cuts and/or greater volumes, pointing to hopefully a boost in domestic demand.
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