Brexit vote to have 'enormous impact' on ag markets


Brexit will have "an enormous impact on agricultural markets", for its potential for encouraging political surprises in Europe, CME Group senior economist Erik Norland said, forecasting volatility ahead for the euro.

The direct impact of the UK's secession from the European Union, the process of which is set to begin in March, will be limited, given that the UK ranks relatively low in agricultural output and trade.

However, "Brexit is going to have an enormous impact on agricultural markets, not because the UK is a big agricultural producer… but what is more important is how Brexit is likely to impact the rest of Europe," Mr Norland told an investor call organised by Chicago broker Allendale.

European Union countries including France, Germany and the Netherlands will face elections in 2017, at a time when the Brexit vote, and indeed the election of Donald Trump as US president, have been voiced by many commentators as indicating, and even encouraging, the potential for unusual poll results.

"All of these countries are going to vote, and all of their elections have the potential to produce really big surprises, just like the Brexit outcome, or just like the election of Donald Trump," Mr Norland said.

Volatility ahead?

For agriculture markets, the most immediate impact of political upset in the EU would likely be through the foreign exchange markets, and in particular the euro, which he termed "the word's second most influential currency, behind the dollar".

"The euro has been relatively stable versus the US dollar, trading at around $1.06 or so [to E1.00]," Mr Norland said.

"It has not changed very much since the UK voted to leave the EU on June 23.

"I have a suspicion that this is about to change."

If this year's elections in EU countries "turn out in such a manner as to make the European Union more difficult to govern… we could see a substantial weakening of the euro".

'Bad news for US farmers'

A weaker euro "could be bad news for US farmers, as it would keep downward pressure" on the, dollar, prices of agricultural commodities in which the EU is a big player.

The EU is "enormously influential when it comes to agricultural prices", he said, with the bloc being, for instance, the top producer of milk, rapeseed and soft wheat.

Furthermore, with the euro being such an infleutnial currency, "any substantial change to its value could take other currencies like the Canadian dollar, the Russian rouble, the Brazilian real… along with it, either to the upside or to the downside".

With Canada, Russia and Brazil all "big agricultural competitors", weakening in these currencies could further disadvantage US agricultural exports.


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