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US Food and Energy Prices Matter
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US Food and Energy Prices Matter

Global investors should pay attention to US food and energy Prices

When investing in government bonds, both long-term and short-term, interest rates and inflation are key.

Declining inflation leads to lower interest rates, making long-term bonds a good investment.

Uncertainty surrounding inflation and interest rates, supports investing short-term bonds.

The United States influences interest rate trends worldwide, thus inflation and interest rates in the US must be watched.

There are many components to inflation, but food and energy are two of the most important.

Energy prices are so important that President Trump has made lowering energy costs a priority of his economic plan. The US wants to convince OPEC to increase production, which would lower energy prices as more oil comes on the market. At the same time, they want to incentivize Oil companies to drill in the United States, which would increase supply further and reduce oil prices.

The key factor pushing oil companies to drill more is the oil price.

West Texas Intermediate WTI oil is presently around 73 dollars, above its one year low of 65 and below its 1 year high of 89 dollars.

The price seems to be in a trend of 85 dollars and 65 dollars.

Within this price range of prices, it seems possible that oil companies will be incentivized to drill, increase supply, and help lower oil prices, benefiting inflation.

The problem is that a lot of US production comes from shale, and shale is more expensive to drill, due to older fields yielding less oil, and the high operating costs.

So, the key question is, if prices go to 65 dollars will shale drillers be incentivized to increase production?

Another option is to drill on formerly prohibited federal lands and offshore. This could work, but it will take time to get the fields up and running.

And, time is of the essence.

Regarding food, Low labor costs are a key to profit in the US food industry.

If the costs of growing and processing food are low, food prices will go down, and inflation will follow.

Foreign workers, often immigrants, are a big part of labor cost in the food chain. If these workers leave, they will have to be replaced, and replacing them could increase labor costs.

Food companies are not going to eat these higher costs. They will be passed on to consumers.

Thus, near-term, food and energy prices may be sticky and not contribute to lower inflation.

And, ff inflation stays up, interest rates will probably stay where they are.

Back the issue of short-term vs long term bonds, short term seem to stand out, especially in counties such as Mexico and Brazil.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

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