The Era of Cheap “Stuff” is Over
Okay, while I’m on a roll, I’ll post another article that came in my e-mail on a newsletter from Premier 1 Supplies. I love that company, talk about very good quality items for your livestock needs. But, I am posting these things because I am tired of where our country is headed, the fuel costs, the cost of living, the people with their upside down mortgages and renting handbags for pete’s sake! Can you imagine? With all the garbage going on, the high prices of things and women are renting Coach handbags! As if that’s important! Crimeny… pay your bills instead of racking up your credit cards and pretending that you can afford to be expensive. Grow up! Obviously that is a new pet peeve… Okay, on to the article.
It’s no secret that prices for most items (fuel, feed, supplies, equipment) that we all purchase to care for our families, livestock and land have increased sharply. But:
- How high will prices go?
- When will prices come down?
- What will prices be in 5 years time?
A. Fuel and electricity
Will rise by 10% and then drop back 15%. Why? We users (who, after much complaining, are innovative and adaptive) will gradually respond to the higher costs by using less. Suppliers of oil, gas, coal, wind energy, biofuels, etc. will respond by producing more btu’s of energy. But we’re not going back below $3/gal. for gasoline or diesel. Too much demand and too few low-cost sources. Electricity costs may not decline at all. So the era of cheap fuel and the products made from it is truly over.
B. Feed (grain, hay)
Year on year costs/values will stay roughly where they now are (high!). The weaker US $ (as low as it may go) will generate large export sales of meat, grain and dairy products to the Far East. Major weather events anywhere in the world in key areas will drive costs higher. Good weather events will drive them lower. In time production of feed and food will go up-but food consumption in the Far East will keep pace with the increased supplies so prices won’t go down. So make the adjustments to the high prices on your own operation.
C. Supplies and Equipment
I predicted rising prices—and advised buying while prices were low. My hunch was correct. A price “tsunami” is occurring. Wave on wave of increases is upon firms like Premier. Higher worldwide costs of oil, steel, copper, zinc, plastics and other raw materials are passed from source to core manufacturer to downstream manufacturer to supplier to customer. 90% of Premier’s suppliers have raised prices in the last 6 months. Steel increases have occurred every 30 days.
The grim truth is that the price increases are not over. Another grim truth is that the low prices of the past 10 years are not coming back. Why?
- The weak US $. It’s impact is still not fully felt even though the $’s decline is probably over. (The $ is not going to strengthen until the US public, as a whole, works smarter, consumes less and relies on products that last longer. We’ve become wasteful. The bill for our wasteful habits is now due).
- The high price of energy. Here also there is a lag time in years between the rise in the US cost of oil/gas/coal/electricity and its final impact on the cost of items we buy made of metal/plastic/fabric.
- The rising economies of China, India, Brazil, etc. Previously they could not afford “stuff”. They can now. So they compete with the US for resources.
For the USA it’s adapt or fall behind.
by Stan Potratz