As many professional marketing analysts and newsmakers gaze into their crystal balls, you often hear rather breathless (and opposing) proclamations about the impact of presidential elections on commodity prices. They will talk about the uncertainty in the market or anticipated policy changes based on who might win and how you can capitalize on these presidential election market opportunities.  However, in an almost pure market driven by global supply and demand, can you expect any commodity price trends or biases during an election year? To help us answer this question for dairy, we’ll look at price differentials from January 1 to December 31 to assess the viability of any potential trends related to:

 

• Political uncertainty and market sentiment during the course of an election year;
• Market sentiment and possible policy changes in the first years of an administration following an election;
• Political party wins the year of and after an election.

 

As we look at the data, remember that presidential elections occur only once every four years. As a result, the data is quite limited (especially for dairy products) and thus not statistically significant. That means that any potential trends would need to be quite compelling for any farmer to (euphemistically) bet the farm.

 

Election Year Impact

 

Let’s first take a look at the impact of election years on the prices of key commodities to a dairy farmer over every election year in which there is a full year of trading. For a trend to be apparent, you would expect to see prices by commodity rise or fall fairly consistently most election years. In addition, you would expect those gains and losses to mimic each other to some degree in magnitude and direction ACROSS commodities. After all, if an election brings uncertainty, in general you would expect that uncertainty to affect the entire market.

 

The table below outlines the annual change in price for key dairy commodities in every presidential election year. (Note that we only include years that traded for a full calendar year.) We’ve highlighted those years in green where prices improved over the course of the election calendar year, and in red for those years where prices fell. The data does not appear to offer any discernable patterns or rules of thumb for marketers to help decide how prices may move during an election year. Depending on the year, sometimes prices go up and sometimes down, and the commodities rise or fall in different directions and magnitude year after year. More specifically,

 

• In a trend environment, you’d expect to see prices almost always rise or fall for a given commodity (in other words, reading down the column). This isn’t the case with dairy farm commodities. With the exception of heating oil, individual commodities rose about half of their election years and fell the other half. For instance, cheese prices rose 3 of 6 times, corn prices rose 7 of 13 times, and soybean meal rose 9 of 16 times.

 

Heating oil (that is, fuel) represents a commodity that appears most sensitive to price changes during a presidential election year, as prices rose in 8 of 11 elections. Notably, while on average prices fell by $0.02/gallon, that was largely due to the economic crisis in 2008. If you ignore 2008, the average price gain around elections is $0.10/gallon, close to the median at $0.12/gallon. However, approach the data with care. The sample size is not significantly large, and—unlike all other commodities—prices can be heavily influenced in an unknown direction by the cartel OPEC to influence U.S. elections.

 

• Alternatively, if individual commodities do not react consistently, you’d expect to see consistency rise or fall across all commodities in a given year (by reading across the rows). However, in the table below, prices do not consistently rise or fall across most commodities in any given year. For elections to bias prices, you’d expect to see a preponderance of years behaving like 2012 where prices rise for every commodity, or even 2016 where prices rose for every commodity except corn’s $.07/bushel decline.
• Finally, we have included average, average high for annual changes greater than $0, and average low for annual changes less than $0 to give you a sense of the magnitude of change and variability of pricing. Because the data are limited and do not appear to line up with a trend, it’s interesting to see the average impact. Remember that these averages are not guidelines for future prices or decision-making.

 

 

 

 

The First Year of an Administration

 

Another common theory is that prices can be affected in the first year of an administration as the markets adjust to more certainty with policy changes and perception of business friendliness. The chart below outlines pricing changes; at first blush, it appears that there is potentially a better case to be made for a trend influence based on the previous year’s election results. In 2005, 2009, and 2021, prices almost across board rose together. Furthermore, Class IV milk and cheese both saw prices rise in all years of data except one.

 

However, there are some important things to keep in mind:

 

• The years 2009 and 2021 both mark the first years of a rebound from extraordinary market events that drove down prices in the previous years—the 2008 market crash and COVID in 2020. Prices really had almost nowhere to go but up, and a market uptick could be expected regardless of election results.
• The five or six years of data for dairy is too limited to draw broad conclusions. Could there be a positive correlation of the year after an election and dairy prices? Certainly. However, remember that the scant number of data points makes any correlation suspect.

 

 

 

 

Political Party Winner

 

A truism is that the economy and prices fare better when one political party or the other wins the White House. To test that out, we used the data above and split it by (1) which party won, and (2) whether prices improved or declined in the presidential election year and in the year following an election. If trends by commodity are influenced by which party wins, we’d expect to see prices generally rise when one party is coming into power and prices generally fall when the other party comes into power. What we found with our very limited (and thus not statistically significant) data is that winning candidates from both parties have some elections where prices go up and some where prices go down. In other words, it’s a crapshoot. Interestingly, in terms of performance, Republicans have historically outperformed Democrats in the election year with regard to changes in price, and in the year after the election, Democrats have historically tended to outperform Republicans.

 

For instance, take a look at Class III milk below. Both Democrats and Republicans won two elections with an improvement in price (D>0 and R>0, respectively) and one decrease in price (D<0 and R<0 respectively) in the year of the election. However, Republicans resided over better price changes with an average increase of $2.54 per cwt compared to a Democrat average increase of $0.36 per cwt. At the same time, the Republican loss was only $-0.41 for the down year vs. Democrat -$8.08 in the dreaded year of 2008. Those performance numbers swing in the year after the election, with Democrats seeing an average $2.36 per cwt increase (and no decrease), whereas Republicans saw a $1.60 per cwt increase over one year and an average -$1.47 per cwt over two election cycles.

 

 

 

For Class IV milk, Democrats won three elections compared to two for Republicans. Only one of three Democrat wins registered a positive change in price in the election years, and all three wins showed positive changes in prices the following year. In contrast, both Republican wins happened in election years with a positive change in price, which changed to one increase (in 2004) and one decrease (in 2016) in prices the year following the election.

 

 

 

As you look at the charts below for cheese, corn, soybean meal and heating oil (fuel), Republicans and Democrats continue to take office as prices go up and as prices go down. For instance, look below at soybean meal during an election year. Democrats took office four times as prices rose and four times as prices declined. Republicans took office five times as prices rose and three times as prices declined. There is nothing in this that indicates a trend. No one party dominates price increases vs. price declines.

 

 

 

 

 

 

 

 

 

Key Takeaways

 

Election year by election year, you can look at performance of commodities and identify the market forces—far more than any political force—that moved markets up or down. Consider the crash of 2008 which affected all commodity markets. Prices turned down as demand plummeted and the economy fell into in a tailspin. For other years such as 2012, corn prices rose on weather events, not political events. In general, when it comes to election years and prices, it’s worthwhile to remember that political changes in the U.S. do not affect the global or even domestic supply and demand for agriculture products. Even though our analysis is not statistically significant, it’s not surprising that we can’t identify any strong trends. Without a change in demand or supply expectations, you’re unlikely to see an impact on price.

 

Instead, focus on factors that, time and time again, have been more important to your marketing and your bottom line. Seasonality, for instance, is a more important historical fundamental to keep in mind. In most years, milk tends to bottom out during the spring. Historically, Q2 has been the worst performing quarter for Class III milk. Similarly, if you bought your feed needs at one time every year, the ample supply during harvest in the fall often provides the best opportunities. Fuel tends to bottom in both winter and summer, with seasonal jumps in between.

 

Instead of trying to guess where the market is going, it’s better to plan for wherever the market might go. That means making a plan that is flexible and adjusts as the market changes. Build a plan that helps you protect your price in the event the market goes up—or down. And be prepared to capture market opportunity as it comes to you, rather than hoping to hit the top of the market.

 

 

Total Farm Marketing can help, as we’ve helped farmers for almost 40 years.

 

Have questions about how you can build a plan to help you in any market environment, or questions about your plan?

 

Call us at 800.334.9779.

 

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