Robert Pore's Ag Blog

Eating out may turn into eating in this year

Economic worries among Americans may translate to less trips to local diner this year, according to Technomic Consultants.

Citing a larger-than-expected slowdown in discretionary consumer spending, foodservice consultancy Technomic revised its 2008 U.S. foodservice industry nominal growth forecast downward from 5.1% to 3.6%.

Among the two largest segments of the industry, restaurants and bars are still expected to perform slightly better than other “beyond restaurants” segments, at 3.8% and 3.1%, respectively.

Technomic indicated that while the industry has enjoyed sustained growth up until now, weaker performance is expected in 2008. Factoring in a 4% rate of inflation, real spending will likely be down this year.

“Because the restaurant industry often serves as a leading economic indicator, our opinion is that the U.S. has most likely entered a recession, or is headed for one,” said Ron Paul, president of Technomic.

"...and the billions keep pouring in."

"To keep a lamp burning, we have to keep putting oil in it."
Mother Teresa of Calcutta

In a letter to the editor in the News-Leader of Springfield, Mo., Bruce Sievers of Battlefield
is urging his fellow citizens to engage in a grass-roots movement to boycott corn-based ethanol.

"In the economic arena, it makes not a bit of sense to use a primary food crop as fuel, especially one as important as corn in our food system," Sievers writes. "Corn is used for everything from sweetener to a basic feed component for meat production. Higher food prices, both now and in the future, are the result."

He said that corn-based ethanol could not compete in the open market without huge subsidies on both a state and federal level. He is urging people to contact their elected leaders and tell them to allow corn-based ethanol to compete in the "free market instead of them trying to buy votes from the farm lobby."

Sievers also wants consumers to refuse to buy "E85 vehicles and declining to purchase fuel known to contain the ethanol."

"Then let the free market decide its fate, rather than our subsidy-happy politicians," he said.

That boycott would be good news for the big oil companies, such as Exxon Mobil, the world's largest publicly traded oil company. According to a story on CNN.com, the oil giant is within striking distance of setting an all-time profit record - again.

According to the story, analysts are expecting the company to post solid quarterly and full-year earnings next Friday that could end up being the highest profit ever for a U.S. company.

"Exxon is likely to have record quarterly earnings," said Fadel Gheit, a senior energy analyst at Oppenheimer. "For every $1 [increase] in the price of oil, Exxon makes [another] $125 million for the quarter."

According to the story: "The company is expected to earn $10.37 billion in the fourth quarter, according to earnings tracker Thomson Financial. That's about $330 million shy of Exxon's previous quarterly profit record of $10.7 billion set in the fourth quarter of 2005 - which also was a record for any U.S. corporation.

"Exxon is expected to make $39.2 billion for all of 2007, just shy of its previous record of $39.5 billion in 2006, which breaks down to the company earning about $75,000 a minute."

With Iraq having the world's second largest oil reserves in the world, the ongoing war there has cost the American taxpayer nearly $500 billion, most of that coming from borrowed money that adds to the national debt, which is now at more than $9 trillion.

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Capital spending reaches all-time high

While concerns about the economy abound and Congress and the White House reaching an agreement about spending the American people a rebate check to give the economy a boost, America's economy is still the strongest in the world with a nearly $14 trillion GDP in 2006.

Results come from the U.S. Census Bureau’s Annual Capital Expenditures Survey: 2006, which measures business spending for new and used structures and equipment, showed that capital spending by U.S. nonfarm businesses reached an all-time high of $1.31 trillion in 2006, topping the $1.16 trillion in 2000 and $1.14 trillion in 2005.

The survey defines capital goods as business assets that have an expected useful life of more than a year and that are usually depreciated.

According to the report:

— Spending on new structures and equipment accounted for almost $1.23 trillion, a 14.8 percent increase over 2005. Nearly 63 percent of this spending ($774.7 billion) went for equipment, with the rest ($450.9 billion) allocated to structures. Spending on used structures and equipment totaled $83.8 billion.

— Businesses with employees accounted for $1.22 trillion, or 92.9 percent of all capital investment, in 2006. Businesses without employees accounted for $92.8 billion.

— The manufacturing sector spent $191 billion on capital goods in 2006, a 15.3 percent increase over 2005.

—Durable goods manufacturers accounted for $105 billion in capital spending in 2006. The two durable goods industries with the largest investments were motor vehicle and parts ($24.4 billion), and semiconductor and other electronic components ($14.9 billion).

— Nondurable goods manufacturers accounted for $86.1 billion in spending. The two nondurable goods industries with the highest spending were food manufacturing ($16.6 billion), and petroleum and coal products ($14.7 billion).

— After manufacturing, the two sectors accounting for the largest capital expenditures were finance and insurance ($169.4 billion), and real estate and rental and leasing ($122.4 billion).
These totals represented annual increases of 5 percent and 18.9 percent, respectively.

— The information sector spent $104.6 billion on capital goods in 2006, an increase of 14.5 percent over 2005. One-third of capital spending in this sector went to structures and two-thirds to equipment.

— The mining sector spent $98.3 billion on capital goods in 2006, an increase of 47.3 percent over 2005. In 2006, the oil and gas extraction industry accounted for 76.3 percent of the mining sector’s total capital spending. In contrast to the information sector, mining allocated roughly
two-thirds (69.1 percent) of its capital spending to structures and roughly one-third (30.8 percent) to equipment.

— Of the 135 industries covered in the report, 54 had an increase in spending in 2006, 13 had a decrease, and 68 showed no significant change from the prior year.

A world amok
"Infinite growth of material consumption in a finite world is an impossibility."
E.F. Schumacher

Lester R. Brown of Earth Policy Institute said that the movement to convert grain into vehicle fuel is "one of the great tragedies of history."

Brown said the rush to turn food into fuel "...is generating global food insecurity on a scale never seen before."

"The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs," Brown said. "Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago."

As a result, Brown said prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such as pork, poultry, beef, milk, and eggs, are everywhere on the rise. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.

In industrial countries, Brown said the higher processing and marketing share of food costs has softened the blow, but even so, prices of food staples are climbing. By late 2007, the U.S. price of a loaf of whole wheat bread was 12 percent higher than a year earlier, milk was up 29 percent, and eggs were up 36 percent. In Italy, pasta prices were up 20 percent, he said.

"World grain prices have increased dramatically on three occasions since World War II, each time as a result of weather-reduced harvests," Brown said. "But now it is a matter of demand simply outpacing supply. In seven of the last eight years world grain production has fallen short of consumption. These annual shortfalls have been covered by drawing down grain stocks, but the carryover stocks -- the amount in the bin when the new harvest begins -- have now dropped to 54 days of world consumption, the lowest on record."

From 1990 to 2005, world grain consumption, driven largely by population growth and rising consumption of grain-based animal products, climbed by an average of 21 million tons per year, Brown said.

Then came the explosion in demand for grain used in U.S. ethanol distilleries, which Brown said jumped from 54 million tons in 2006 to 81 million tons in 2007.

"This 27 million ton jump more than doubled the annual growth in world demand for grain," he said. "If 80 percent of the 62 distilleries now under construction are completed by late 2008, grain used to produce fuel for cars will climb to 114 million tons, or 28 percent of the projected 2008 U.S. grain harvest."

Historically, Brown said the food and energy economies have been largely separate, but now with the construction of so many fuel ethanol distilleries, they are merging.

"If the food value of grain is less than its fuel value, the market will move the grain into the energy economy," he said. "Thus as the price of oil rises, the price of grain follows it upward."

Brown said that University of Illinois economics team calculated that with oil at $50 a barrel, it is profitable — with the ethanol subsidy of 51¢ a gallon (equal to $1.43 per bushel of corn) — to convert corn into ethanol as long as the price is below $4 a bushel.

"But with oil at $100 a barrel, distillers can pay more than $7 a bushel for corn and still break even," he said. "If oil climbs to $140, distillers can pay $10 a bushel for corn -- double the early 2008 price of $5 per bushel."

The World Bank reports, Brown said, that for each 1 percent rise in food prices, caloric intake among the poor drops 0.5 percent. Millions of those living on the lower rungs of the global economic ladder, people who are barely hanging on, will lose their grip and begin to fall off.

Brown said there is much to be concerned about on the food front.

"We enter this new crop year with the lowest grain stocks on record, the highest grain prices ever, the prospect of a smaller U.S. grain harvest as several million acres of land that shifted from soybeans to corn last year go back to soybeans, the need to feed an additional 70 million people, and U.S. distillers wanting 33 million more tons of grain to supply the new ethanol distilleries coming online this year," he said. "Corn futures prices for December 2008 delivery are higher than those for March, suggesting that market analysts see even tighter supplies after the next harvest."

Brown said U.S. taxpayers, by subsidizing the conversion of grain into ethanol, are in effect financing a rise in their own food prices.

"It is time to end the subsidy for converting food into fuel and to do it quickly before the deteriorating world food situation spirals out of control," he said.

Indonesia, Barbados allows U.S. beef

According to Acting Agriculture Secretary Chuck Conner, Indonesia and Barbados have fully complied with international trade standards regarding beef and beef products by allowing complete market access for U.S. beef and beef products of all ages.

"I applaud the Indonesian and Barbados ministries of agriculture for making a decision that is based on science and in line with international guidelines," Conner said. "This shows that constructive and steady discussions with our trading partners are bearing positive results for future U.S. beef exports."

He said Indonesia is setting a standard for other Asian nations by agreeing to import U.S. beef and beef products consistent with World Organization for Animal Health (OIE) guidelines.

"Much like our recent agreement with the Philippines in November, this agreement with Indonesia emphasizes that we will continue to press for full market access for U.S. beef and beef products of all ages throughout the Pacific Rim," Conner said.

Conner said Barbados possesses one of the strongest economies in the entire Caribbean and enjoys some of the largest per capita incomes.

"Moreover, tourism accounts for more than half of the gross domestic product (GDP) in Barbados." he said. "With this agreement, Barbados and Indonesia signal their determination to be guided by the same international standards that help to deliver top quality cuts of U.S. beef and beef products to consumers and retailers around the world."

Conner said that more than 100 countries now allow the entry of at least some U.S. beef and beef products, a result of intensive efforts by USDA to regain market access.

Exports of these products to Indonesia reached a high of $17 million in 2005 with partial market access. Under this new agreement, USDA estimates that U.S. beef exports to Indonesia could potentially double in 2008 and 2009. Exports of U.S. beef and beef products to Barbados were roughly $2.7 million in 2007 (January - November) with partial market access."