profitability

Its time to revisit the notion of opportunity costs. Opportunity costs are measured by the value of the next best alternative that you rejected when you make a decision. Opportunity costs and in fact all costs predate the invention of money. Even in our religious and wisdom writings, opportunity costs abound. For instance, what was the cost to humanity of Eve eating the apple? No money exchanged hands but the cost was the loss of paradise in exchange for knowledge. What is the current (and on-going costs) of choosing your current spouse, if you have one? That usually gets the point across.

Everyone is hearing the call to reduce weights as an industry strategy to force the pass-through of higher costs up the chain. Every time the industry cycles through the oversupply phase, joint action is recommended to pull back supply.

This can be an effective strategy but the problem we face is that the industry has not consolidated to the point where joint action is likely to succeed. The reason is the benefit of cheating.

When there are hundreds or thousands of competitors in an industry, each seeks to optimize its output based on its own costs and price offerings without regard to the actions of others.

Always think in terms of profits not cost control. I am going to say it once for all of those who can't seem to get by it if I leave it out...yes costs do matter and they matter a lot but reducing cost without understanding the impact on revenue is a common mistake.

The better way to think in times like these (or any other time for that matter) is that every dollar spent is an investment (not an expense). The difference between an investment and an expense is that an investment is made with full expectation that it will not only be recovered but that it will generate a positive return. Expenses or costs are paid with the idea that they are a necessity and that they are a payment for inputs. That attitude and those expenses should be dumped.

Everyone is pretty much convinced that 2008 will be a year filled with red ink for those who only produce and market pigs. The bulk of the problem of course is the unfolding and misguided government policy which is supporting the doubling and maybe tripling of average corn prices with little or no impact on the goal the policy is supposed to address, namely: more freedom from foreign oil.

The cost of this miniscule increase in "freedom" will go far beyond the increased prices users of corn are paying world-wide as a result. I am going to take another stab at those costs soon since more and more is becoming known about the unintended and collateral consequences of all of this. But since we find ourselves here, with legislators of every political stripe in agreement that it is a very wonderful thing, we have to think again about how to reorganize the operation to keep from getting sunk financially.

     A lot of the rest of the world of pig production is sporting this feeling which borders on gloom and doom.  The pork industries globally are feeling some rather severe strains at this time profit-wise especially in Europe, Canada, Mexico and Brazil but other places too. 

     Our rather significant currency valuation advantage is helping to contribute to significant competitive advantages over other nations (especially those that target the same export markets).  If the FED decides to cut again later this month, which is being built into the stock market as an expectation as we speak (or write!), you can expect to see the dollar slide again against the pound and the Euro.