Forget about the pebbles-in-a-pond-cause-ripples analogy this time. The impact of the United Kingdom's (UK) vote 10 days ago to leave the European Union (EU) - "Brexit" - is more like a meteor and a tsunami.
And even U.S. dairy farmers figure to get wet.
Big waves started immediately. On June 24, the day after Brexit's narrow passage (51.9 percent to 48.1 percent), financial markets around the world convulsed. The U.S. stock exchange alone dropped 610 points, and then 260 more the next trading day. It has been estimated that $3 trillion of value was wiped from global markets during those two days.
It's a massive hit that no one with IRAs or other retirement accounts could escape.
U.S. milk producers should expect a more dairy-specific effect of the resulting global turmoil in the form of dairy product exports and the trickle-down impact they have on prices. The day after the Brexit vote, for example, Class III futures at the Chicago Mercantile Exchange dropped strongly across the board.
A shift in market competitiveness has also occurred due to sudden changes in currency values. By early last week, the pound sterling had dropped 12 percent against the U.S. dollar to a 31-year low, making anything the UK exports instantly cheaper, including dairy products.
Longer term, there is no telling whether the UK's departure will prompt any of the 27 remaining EU members to leave as well. A longer-term worry is that it might cause the entire trading bloc to collapse and push Europe into a recession that drives dairy farms out of business.
How long Brexit's financial turbulence lasts is a true "pick a number" guess, because there is simply no precedent for it. Over two years might be a baseline, though. After the Brexit vote, UK Prime Minister David Cameron announced his resignation, but said he would leave the job of officially notifying the EU of the UK's decision to leave to whomever fills his position in October. Once started, EU bylaws specify a two-year process to leave.
Then again, there is no guarantee that the UK will leave. There is already a massive call, especially by younger voters who didn't turn out in big numbers the first time because they didn't think Brexit would pass, for a do-over vote that is already been dubbed "Regrexit."
Within four days of Brexit, as its sweeping negative implications began to sink in, more than 3 million people had signed a petition to hold another vote. "Leave" proponents had also begun to backpedal on fervent campaign claims and even deleted them from the campaign's internet homepage.
The UK's Brexit story is far from over, not to mention the uncertainty that financial markets absolutely despise.
July 5, 2016
