When its grim, there's value! Especially when demand is inelastic period!
------------------------------------------------------ The economy and the ag producer 4/17/2006
Bob Utterback
The general economy is growing at rates that historically would have everybody giddy. Even that unemployment is at historically low levels, the general attitude of most people I’ve talked with is less than optimistic about the future. What’s up?
What normally would be considered extremely attractive economic statistics are being over showed by international concerns regarding the continued uncertainty of the Mideast. However, the real factor driving people right now is future uncertainty regarding the cost of living versus having a future job.
While most people are currently working, their wage rates are not really increasing; or as many would say it’s getting harder to make a buck. The cost of inputs are going up, notably “fuel cost” and related items. So the potential for increasing profits in the future seems depressingly dim. The real impact of higher fuel cost, the potential for higher food cost and other necessities of life takes away disposable income.
What are the implications to the ag producer?
• Higher fuel cost for gasoline and diesel, which is occurring right when fuel needs are increasing. The other impact higher fuel cost could have is on the western corn producer. With the potential of higher irrigation cost in excess of last year many producers may not switch from beans to corn as quickly as the trade is suggesting.
• The secondary impact on farmers is all the input costs, which are going be going up (from the grain bins he builds to store the grain to the combines he purchases to harvest the grain).
Will input costs rise faster than the market price action? My hunch is the profit margins will not improve that significantly and more than likely will tighten a little. The subsequent reaction is continued pressure to get bigger to maintain profitability.
