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Beefs and Beliefs

New Year Brings New Problems and Opportunities

The waning of cheap energy means beef producers should reduce dependency.

The beef industry has had a nice break over the holidays from a pretty rough year.

I don’t expect it to last.

The anti-everything people will come back in spades and our costs will continue spiraling upward, even if we get a break from time to time.

Moreover, I believe as the global economy slowly heals over the next three or four years we’ll see crude oil and energy prices surge. At some point in the not-too-distant future, I believe it will put the world economy into another price shock cycle and we’ll turn down again.

The fact is the oil price shock was one of the major triggers for our current recession/depression. Certainly, the government tinkering in the housing market contributed, as did Wall Street’s machinations with mortgage money. We continue struggling with unprecedented amounts of consumer debt, as well. But we should remember just how dependent we are upon cheap energy.

Cheap energy from stored hydrocarbons are key to every step of every manufacturing, transportation, wholesale and retail process of every product in the economy. When energy was cheap, price fluctuations weren’t that important. As energy takes a bigger bite from every segment, the price begins to matter.

Most consumers are pretty much fully budgeted to spend all their income and when commuting costs roughly doubled in 2008, they had to cut back. That triggered the recession.

Interestingly, the only news story I heard at the time which even discussed the importance of the price of oil was with the CEO of Fed Ex. He stated unequivocally exactly what I’m saying now.

I’ve written about these problems before and I believe as transportation fuel in particular gets higher demand and tighter supply we’ll see continued cyclical price shock scenarios like we’re living out now.

While those of us who produce beef can’t control how this will affect our markets, we can use every piece of knowledge and technology possible to take energy dependency out of our operations.

This is the positive action we can take in the face of a rough future.

I’ve been seeking those things for several years now and exposing them in the pages of Beef Producer. I will continue doing so through the new year and in the years to come.

Best wishes for a prosperous 2011.

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