The cattle industry has done a remarkable job of producing more pounds per acre, and in distancing itself from other countries in terms of providing more saleable, high-quality product per cow exposed. In fact, along with the efficiencies in transportation, feeding, packing and processing, the combination has largely negated the advantages several countries have over the U.S. in terms of land and labor costs.
The emphasis is shifting from efficiency to effectiveness. Effectiveness is producing a specialized product for a specific market in a way that it can sustain higher-than-commodity prices. In the past, this trend was misinterpreted to mean that being a low-cost producer is no longer important or, worse yet, that there isn't an opportunity to lower one's cost structure.
Being a low-cost producer will always play a significant role in the economics of our business. In fact, it's likely to be the key in being able to implement value-added opportunities.
Initially, participating in branded, value-added or differentiated production will require additional investment. Low-cost producers will be the only ones able to participate successfully in many of these new business models.
There tends to be three categories of premiums: low-cost premiums (cost advantages over the average producer), partnership premiums (synergies created by working with partners vs. adversaries and removal of redundant or non-value creating practices), and value- creation premiums (sustainable advantages created by developing brand equity, and exceeding the expectations that consumers have of similar products in the marketplace).
These premiums seem to be essentially equivalent, with each category offering roughly the same opportunity for improved profits. Large entities that have concentrated on economies of scale, as well as margin operators, likely will continue to primarily emphasize costs. Others will focus on either partnership or value premiums. But the most successful will focus on all three.
Consumer confidence remains well above year-ago levels. With an index of 92.9, it's climbed back to the levels the economy enjoyed in November and December 2003. Retail sales have grown 11 of the last 12 months.
The Gross Domestic Product (GDP) for the last quarter was up 4.1%, and has grown at more than a 6% annual rate the last two quarters (3.5% is what economists consider the goal for long-term growth).
The Institute for Supply Management index continues to show the manufacturing sector expanding; the index has been above 50% since July. Factory orders in March were up a sizzling 4.3%. Unemployment rates continue to drop, and the economy has shaved .5% off the rates in the last year. Inflation remains well below 2% and has not become an issue. This indicates interest rates will remain near historic lows in the short term to further economic expansion. Low interest rates continue to drive a robust home sales market as well.
While nearly every economic indicator is pointing toward an expanding economy, there are concerns about the chilling effect of rising energy costs in terms of driving inflation, eventually slowing expansion. Also, the current political campaign is promising to be bitter and could short-circuit the economy.
Psychology is undoubtedly the most important indicator. The political climate is such that candidates spend far more time tearing each other down than building up America. It's far easier in today's age of sound-bite politics to know what or whom somebody is against than what it is that they stand for and are working toward.