I’m as bullish as anyone can be about the future of the cattle industry. In fact, I’ve been saying for several years that we’re entering into a time that we will tell our grandchildren about.
I’ve also acknowledged that about the only thing that can mess things up for us is a negative force from outside the industry. Of course, there’s always the potential of some sort of health scare or outbreak similar to what was experienced with BSE, but the industry has been pretty focused in making sure that preventive measures are in place. And we’ve seen that government regulation and overreach are viable concerns, too, but I think the most significant threat is the overall performance of the U.S. and global economies.
Experts tell us that all we need is to maintain an anemic 2% growth in GDP in order to sustain beef demand and continue to improve on today’s price levels. And, historically, it’s difficult to imagine an economy performing so poorly for any extended period of time. However, it appears that we might actually continue to hamper the economy to the point that the 2% growth number comes into play. Here, for instance, are some statistics I find scary:
• The Federal Reserve has expanded its balance sheet by more than $3.4 trillion in recent years. That expansion was supposed to ease the credit contraction that had overtaken the global economy, but that hasn’t happened. In March, the Fed released projections for real GDP growth of 2.8% to 3%. But when the first-quarter numbers came in, they were beyond disappointing, as they indicate an annualized growth of 0.1%. Meanwhile, the economic stimulus designed to boost the economy has now topped $3.4 trillion, but where's the growth?
• In January 2008, the Fed saw no recession or financial crisis on the horizon. It projected between 1.3% to 2% real growth in 2008, and between 2.1% to 2.7% growth in 2009. Things have improved but have been only half of expectations, as the economy grew by 2.5% in 2010, 1.8% in 2011, and 2.2% in 2012. At 1.9%, 2013 was even more disappointing, and 2014 appears to be on course for the worst numbers yet.
• I’m not sure that one can call what we’re in a “recovery,” but if you choose to, it’s pretty certain to be the slowest and weakest recovery in the history of the U.S. economy. So much so, in fact, that China is predicted to actually pass up the U.S. as the world’s largest economy by the end of the year, according to an article in The Economist.
The good news is that while the U.S. may no longer be the world’s sole economic power, China (which ironically is being more free market and capitalistic in their policies than the U.S. and isn’t trying to build its economy upon a mountain of debt) may actually be able to keep the global economy moving forward. That’s despite the ineptitude of the current U.S. government.
• The stimulus, while largely being an unmitigated failure, has created an artificial boom in the stock market with the fed buying $50 billion to $80 billion in securities every month. In 2007, financial institutions held $1.78 billion in excess reserves; today, they hold $2.7 trillion. Little wonder that the program hasn’t worked.
• The U.S. government may take in more taxes than the rest of the world combined, but it continues to spend trillions more than it takes in. Spending well beyond your means should theoretically stimulate things in the short term, but the world has seen this scenario before. Like Greece, unsustainable spending can only last so long.
The reality is that growth remains anemic at best and wages are stagnant, while input prices continue to rise and debt levels are too high. Borrowed money can be paid back in the context of a growing economy or business, but can’t be reimbursed with anemic growth and declining margins.
Things still look great for the beef industry, but the overall economy needs to be watched closely. We seem to be doubling down on failed policies. I would analogize it to a cattleman who’s only been weaning a 70% calf crop and decides to fix the problem by doubling the number of cows. If you don’t fix the underlying fundamental problem, you’re just going to accelerate the arrival of the dispersal sale.
You can delay, but not stop, the inevitable. I remain bullish, however, simply because I believe American entrepreneurs, American workers, and America’s work ethic and values will find a way to overcome the best efforts of the government to stifle growth. However, I’m also more cautious these days because the government’s reach and power are far greater than they’ve ever been.
The opinions of Troy Marshall are not necessarily those of beefmagazine.com or the Penton Farm Progress Group.
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