It’s Beef’s Turn

In my seminars I frequently comment that if you are involved in commodity agriculture, you run into the “Two in Ten Year Rule.” That is, there are two years out of every 10 when the weather, markets, and overall economic environment line up and tremendous profit opportunities are prevalent. The beef industry is in the midst of this occurrence.

There are four primary reasons why we are experiencing an environment for record beef prices. First, cattle inventory and numbers are in the low part of the cycle. This is a matter of supply and demand.

Secondly, with the closing of the Canadian border because of BSE, or mad cow disease, imports are reduced by 7 to 9 percent, depending upon the experts’ estimates.

Third, the demand for beef increased because of the Atkins’ and South Beach diets. People have re-discovered beef and found that it is the junk food that adds the pounds.

Fourth, the devaluation of the dollar has made it favorable for the export of beef products.

Warning

With record prices in the beef industry, some of the biggest management blunders will be made in this industry.

Some people will purchase assets to reduce taxes in the short run; only to go broke minimizing taxes in the long run.

Second, killer toys will be very prevalent in areas where the primary enterprise is beef. This will be a good year for four-wheelers, gooseneck trailers and new pickups.

Fixing the Rate

Producers are moving toward fixed interest rates. Recently while working with a large West Coast lending institution, a 1995-2003 comparison was presented.



1995 2003
Variable Rate

45%

40%

Fixed Rate

18%

42%

Adjustable Rate Mortgage

37%

18%

The lock-and-load strategy looks like a good move in an era of possible interest rate increases.

My e-mail address is:sullylab@vt.edu

Editors' note: Dave Kohl, The Corn and Soybean Digest Trends Editor, is an ag economist at Virginia Tech. He recently completed a sabbatical working with the Royal Bank of Canada. He is now back at Virginia Tech with his academic appointment, which is teaching, extension, and applied research.

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