The administration of US President Donald Trump could dent agribusiness groups through its priority of renegotiating trade deals, MetLife Agricultural Finance said – although noting dollar strength as only a partial setback.
MetLife Agricultural Finance, one of North America's largest farm mortgage lenders, said it was "approaching 2017 with caution", given that "periods of uncertainty generally lead to volatile markets".
Uncertainty surrounds factors including the roll-out by Mr Trump, inaugurated in January as US president, of an agenda which has already seen the country withdraw from the Trans-Pacific Partnership trade deal, besides pledging a renegotiation of North America's Nafta treaty.
"Only time will tell if the incoming administration and the new Congress can deliver what the market anticipates," MetLife said.
Still, the group underlined that "the new administration's approach to US trade policy could negatively impact the agribusiness sector in 2017, as renegotiating trade agreements could lead to interruptions in trade activity and market volatility.
"Income growth and trade volume drive agribusiness revenues," MetLife said.
"A common theme in the sector is the importance of trade volume, which could be interrupted as US trade policy is revisited."
The comments come as some members of the Trump administration have attempted to calm sector nerves, with Ray Starling, special assistant to the president on agriculture and ag trade, this week saying that the White House has been holding talks with farm industry leaders over the potential renegotiation of Nafta.
"I think a lot of people on the ag front feel like what we got out of our Nafta was generally good and that we certainly don't want to regress on any of the gains that we made there for ag," Mr Starling said.
Strength in the dollar is an issue too for many groups within a sector which relies on exports for some 25% of revenues.
"Grain and oilseed wholesalers are sensitive to changes in exchange rates.
"All things being equal, a stronger dollar makes US exports less competitive in international markets."
The greenback, while it has retreated from early-2017 highs reached amid a surge in initial optimism over a boost to the economy from Mr Trump's reforms, remains some 4% higher year on year against a basket of currencies,
But MetLife highlighted that many agribusiness groups, such as those in storage, were far less vulnerable to dollar strength.
Revenues for grain and oilseed trader dropped by 20% in the year to March last year, the latest for which data are available, "as the total volume of agricultural exports fell 6% due to an appreciating dollar".
However, revenues rose by 19% over the same period "for cold storage businesses due to growing domestic supplies and higher imports".
Furthermore, all groups stand to benefit from "improving US economic conditions", MetLife said, flagging an estimate from Moody's Analytics that disposable income for Americans will rise by 4% this year.
"Disposable income is positively correlated to revenues in the agribusiness sector.
"Consumers tend to increase food and fuel expenditures as incomes rise."
In response to interest in the implications for agriculture of Mr Trump's presidency, and broader political trends, Agrimoney.com is next month publishing a report 2017 Outlook for global agribusiness: Agricultural trade in the era of Trump and Brexit.
To register your interest for the forthcoming report please contact Rainy Gill at: firstname.lastname@example.org
By Mike Verdin