I believe the tree of beef demand has weaker roots than most economic pundits are predicting.
Many of you know Bill Helming has for some years now been among the few economists in whom I put a fairly large amount of trust.
That's because Helming is one of the few who looks first at the macro economy and then the micro-economy of agriculture within that larger picture.
This is always important but it seems to me it's particularly so for beef, which is one of the more expensive protein products and therefore especially prone to consumer protein substitution and loss of demand. Remember, too, that elsewhere in the world, in poorer places, protein itself is considered a luxury.
Therefore, the more our wealth disappears in this nation and the more we lose our middle class, the more the beef industry will suffer. Exports are vital but they still provide a minority of the value to the beef industry.
We know from USDA statistics that the ratio of ground beef to whole muscle cuts of beef purchased in this nation has been almost perfectly inverse for years, with consumption of lower-cost ground beef increasing and higher priced whole-muscle cuts declining.
Now a new study tells us for the first time in eight years that the number of meals U.S. grocery shoppers prepared which featured a portion of protein declined from 4.1 to 3.6 meals per week. Although the share of shoppers eating meat and poultry at least once a week remained stable at 93%, this is not a good omen. Other statistics tell us they are cutting back on portion size, which of course cuts per capita consumption, thereby decreasing demand and potentially decreasing price.
I fear this is the tip of the iceberg.
There are many, many reasons. In a few words, however, it is because the consumer is already besieged.
Consumers are broke
In a new video, Stefan Molyneux of Freedomain Radio outlines the dire straits of beef's U.S. consumer. Here are a few of those facts:
- Total consumer debt in the U.S. has risen by 1700% since 1971.
- In 1893, the bottom 95% of all income earners held 62 cents of debt for every dollar they earned. By 2007 that figure was $1.48.
- One-third of all Americans are not paying their bills on time.
- 43% of all American families spend more than they earn each year.
- 46% of all Americans carry a credit card balance from month to month.
- The average debt of consumers who carry credit card debt is now $15,799.
- The ratio of household debt to personal income in the U.S. is now 154%.
- Only the top 5% of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
- For the first time in history banks now own a greater share of residential housing net worth than all individual Americans put together.
- The bottom 50% of the income earners in the United State now collectively own less than 1% of the national wealth.
- More than 100 million Americans, one-third of the population, are now enrolled in at least one welfare program run by the federal government, not counting Social Security and Medicare.
Perhaps more important, the public psyche is turning pessimistic.
Some 70% of Americans think we are in a serious or moderate recession and 48% think another "Great Depression" is likely within the next 12 months.
Do you think these folks will be spending more money on protein?
My bet is they will not.
On top of that, Boston University economics professor Larry Kotlikoff says the real debt on Uncle Sam's credit card bill is more than $222 trillion dollars. Government is putting tremendous strain on the economy unlike what was there in the depression of the 1930s.
Kotlikoff calculated this astounding number using something he calls the "fiscal gap," which measures the present value difference between all projected future federal expenditures (including servicing official debt) and all projected future taxes. He included the federal government's huge unfunded promises to pay Social Security and Medicare in these calculations, for example.
Kotlikoff therefore says this fiscal gap is the true measure of our government's total indebtedness and the true measure of fiscal unsustainability.
I can't for the life of me think how to paint a smiley face on this situation. It just looks grave to me.
However, I think it's best to see the reality train barreling down on you and try to jump out of the way than to turn your back and let it hit you.
It seems the advice Helming keeps giving is fundamentally sound. Keep out of debt. Keep dollars more than any other money instrument because as dirty a shirt as the U.S. dollar is, it's still not as dirty as the rest of the world's currency.
Be on edge, be prepared and look for opportunities to save and to sell at a profit.