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Comparing Walmart to a small-town flower shop shows cheaper pricing is king. Comparing beef with its alternatives is no different.
January 25, 2017
My wife operates a flower and gift shop in our small town, and despite her amazing ability to create artistic, high-quality floral designs, she just can't compete with the nearby Walmart store when pricing and selling these gift items.
The cost of small wholesale purchases, plus shipping and the breadth of the giant chain's offerings, simply makes it difficult to sell something in her shop that people can't buy cheaper or at least substitute a purchase of something cheaper just a few miles away at Walmart. Neither can any of the other small retailers, and the breadcrumbs left after the consumers get done with their primary shopping at Walmart or with online retailers is barely a fit meal for a mouse.
That's because saving money is an American obsession and it applies to the purchase of beef, pork and chicken in roughly the same manner it applies to our flower and gift shop. In the eyes of the consumer, who has limited income, quality is nice but low price can be nicer.
To put the beef discussion in context of our small-town shop, people may like the tasteful, high-quality Christmas ornaments my wife sells (like beef), but a majority of what they put on the tree was purchased at discount-store prices (like chicken).
When the oilfield is rolling around here, cattle prices are up, and wheat and soybean prices are above average, customers are likely to buy a little more of those tasteful ornaments (beef). But they will still buy more chicken (cheap ornaments) overall.
Maybe they'll step in and buy a little extra quality after Christmas when it goes on sale (like ground beef). But a lot of Christmas trees still will be filled with cheaper ornaments, even in the good times (chicken).
The thing that concerns me even more is the poor prospects for the sale of "quality" now that the economy is weak. This affects my wife's retail sales and it potentially affects beef.
This so-called recovery since 2008 has been pathetic and is due to run out of steam. In fact, if you measure it with gross domestic product (GDP), we've been in a depression worse than the 10 years of the Great Depression of 1929-1939.
I read a lot of economic literature, but especially from people who forecast trends, particularly macro-economic ones. Harry Dent is one of those, and his data says the retirement of the baby boom will slow the economy dramatically, in addition to three other economic cycles. Jim Rickards is another. His analyses are partially based on what I would call political trends. He says a confluence of factors, including an overdue stock market correction, the downfall of China and massive U.S. budget deficits will cause a recession by this spring.
The third whose material I subscribe to is David Stockman, the former congressman and budget manager for Ronald Reagan’s administration. In short, Stockman says the Federal Reserve's funny money policies, together with peak debt in all sectors of society, together with the irrational exuberance of what he calls the "casinos" on Wall Street, are heading for a comeuppance.
I can find no reason to fault any of these soothsayers, as it matches the reality I've been following for several years now. Both Stockman and Rickards emphasize the problems coming with the end of the last debt ceiling agreement upcoming on March 16 and the fact Congress and the new president must deal with this gargantuan issue.
If you want a bit of upbeat news, private economist Bill Helming, who was the first economist for the National Cattlemen's Association, now thinks we are less likely to fall into serious recession. But his latest outlook for cattle and grain prices is not pretty, and he believes we have some distance to travel yet in the land-price downfall.
On a positive note, we're already seeing the Trump administration rolling back regulations and hopefully that will continue. Goodness knows he and Congress have hundreds to repeal just from the last three presidents.
So, as the larger economy weakens across the world, and as we face that wall of meat from all three major protein industries, including our own beef industry, my suggestion is to get your costs down, clear out as much debt as possible, sell excess holdings and wait for opportunities.
This resonates with the title of Harry Dent's new book, "The Sale of a Lifetime." We must still be cautious, and the wise will pinch their pennies and wait patiently.
Editor, Beef Producer
Alan Newport is editor of Beef Producer, a national magazine with editorial content specifically targeted at beef production for Farm Progress’s 17 state and regional farm publications. Beef Producer appears as an insert in these magazines for readers with 50 head or more of beef cattle. Newport lives in north-central Oklahoma and travels the U.S. to meet producers and to chase down the latest and best information about the beef industry.
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