AFF Sentinel Vol.3 #40

Here are some economic factors for the beef industry to ponder.

Tax rate cuts have lowered the burden of taxes and, therefore, increased economic output and government revenues. Will Democrats be successful with their pledge to "roll back" tax cuts and mandate minimum wage increases? Will President Bush veto tax increases and compromise on the minimum wage? Will the Democrats be successful in increasing regulations, costing businesses money and the economy strength? If tax measures do pass in 2007, they will affect the economy in 2008 or 2009 but the psychological effects will be faster.

Oil: There has been very little progress in supply, with a Republican majority. Congress has allowed little new development in the Gulf, off either U.S. coast or in Alaska. There is less chance now. Oil supplies could tighten, and probably the only thing that will keep prices down long term would be a worldwide recession dampening demand.

Democratic Party Chairman Howard Dean, speaking on Fox News Sunday (11/12/06), indicated that while the Democrats didn't intend to raise taxes on the "middle class," two of the first targets should be oil companies and HMOs. If they intend to forbid oil companies from expanded drilling and take away their capital to do so anyway, expect higher oil prices. Some special tax on HMOs, which have struggled for profitability, could make health insurance unaffordable for many more millions of Americans - to the delight of Democrats trying to force national health insurance.

Ethanol will have significant plus and minus effects on the livestock industry. Upward pressure on corn prices scoffed at by many only a few months ago has already kicked in. The factor that changed the game, missed by many at the time, was gasoline refiners' decision to switch additives from MTBE to ethanol to meet environmental regulations. How much will the increased cost of gains be offset by an abundance of distiller's grain for some feeders? Will grain industry giants figure out an economical way to utilize the distiller's grain not fed locally? Long-term, how many corn farmers will be saved by an ethanol- supported demand increasing corn prices? Will that factor assure a stronger corn farming base ... something uncertain under the situation of oversupply, low prices and the political uncertainty of subsidies in the near future? Will those prices enable the phase-out of corn subsidies?

Will the Democratic party's ties to unions and job preservation at all costs lead to trade protectionism? Will we see the protection of a few thousand jobs jeopardize the millions of jobs and billions in capital inflows that have been outsourced to the U.S. by other countries? Will the concept of "trade" (i.e. goods for money and/or money for goods) be endangered? Will fast track authority for the president be renewed? COOL issues are important to Democratic constituents in this context.

Most likely, we will find out if the WTO Doha Round on ag policy is dead or alive in 2007. Agricultural producers around the world have so much at stake, revival is a possibility. But the feeling of strength among developing countries, fear of competition from developed countries and attachment of some farm segments to subsidies are not easily resolved.

Packers have been taking it on the chin regularly the last couple of years, but major shifts in the makeup of major packers have not happened. Will 2007 mark the year some shareholders and management lose patience with the returns from their slaughter operations? How much will labor problems affect packer costs, chain speed and efficiency?

How will the restaurant industry be affected by possible federal minimum wage-induced cost increases Pelosi is promising?

Regarding taxes, the Wall Street Journal explained the game. Democrats are disguising so-called "pay as you go" budgeting as "ethics reform." Because tax cuts must be offset by less spending, tax cuts will be almost impossible. Entitlement programs with automatic increases built in annually, however, are exempt. Such rules would prohibit extension of the Bush tax cuts set to expire in 2010 ("The 100 Hours Rush," 01/04/07). It also means Democrats could pass new programs by cutting programs they oppose.

Guaranteed to be an interesting year.

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