Farmers could be natural economists

A farmer in North American regularly delivers his grain to an elevator or processor and often chooses to have the dealer store his grain for a fee, for example 20 cents per bushel for delivery in May. The situation for example in November offers a spot sale of $2.00 per bushel with a potential range of $3.00 to $4.00 when and if prices rise in the spring. The farmer has gotten rid of his operational risks of handling and storage and has taken on market risk which he can hedge (and they do) or leverage (and they do) with or without the help of advisors. If he does not need the cash there is no credit risk and transaction costs are all known. Farmers have been doing this for decades with a portion of their harvests.

Intuitively they also understand negative interest rates on funds or bonds. No need to explain to them the risks they have assumed in exchange for the safety of their basis. They have a tranche of their (crop) portfolio purely subject to market risk and opportunity. The original asset remains secure. If, as anticipated, the seasonality of corn prices rises towards the historical mean, they can profit nicely depending on the structure of their financial arrangement, but their basis is known and their carrying cost are known. Since there is a long tradition of paying a fee for someone to hold their assets, they are relaxed about the transaction, and can sleep at night.

Why all the angst about negative interest rates? There is little difference between paying Sweden and paying a grain dealer to hold and secure an asset.  But politicians and governments and geopolitics begin to get involved with bond markets, raising (IMHOP) unnecessary questions about an environment of very low or negative interest rates. Many elements of economics do change in extended low rate environment. There are also potential structural changes coming after several years of low rates, combined with a liquidity trap.

But I would argue that the anxiety or nervousness in the investing public is being generated by the salesmen of market services.  Their performance last year was terrible.  Investments into bonds at negative interest rates is a rejection of their sales pitch – that managed selectivity outperforms markets. Perhaps they should leave their overpriced funds and go into farming.