Fuel Prices - Economy

[farmers_son]

Fuel prices were in the news this morning. $135 a barrel for oil. A year ago it was something like $66 a barrel. The reasons for the dramatic change in the price of oil was the devaluation of the U.S. dollar and increased demand for oil from China and the developing countries.

Without question the U.S. dollar has devalued. I am not so sure about the increased demand from China, China is a major oil producing country itself.

It seems to me that oil is the new currency standard, replacing gold and silver. If this is true then the real value of our assets, when measured against the oil standard, has declined dramatically in the last year. And as oil has increased in value, interest rates have dropped. Interest is almost free now, with the Bank of Canada overnight rate at 3% and one month T-Bills at 1%. See:

http://www.bankofcanada.ca/en/rates/exchange.html

There is a very intersting paper on how the World Economy is affected by Oil Prices. It was written before the recent dramatic rise in oil. See:

http://www.iea.org/Textbase/Papers/2004/High_Oil_Prices.pdf

[smcgrath76]

Based on the recent trends in Gold I think that Gold and Oil are close to on par. Congress had the heads of several oil majors drug on stage yesterday for questioning. I wonder how long the free market economy will remain free with Oil rising.
The real question is how do we insulate our businesses against this dramatic increase.
1. reduce fuel consumption?
2. increase price?
3. secure fuel in advance of need
4. invest in oil
5. other

all of these options have pros, cons and a limited application. The hyperinflation of oil prices should certainly take a lot of attention in regards to protecting margins.

What are others doing?

[wilagro]

I am only going to town when absolutely necessary until they get this thing under control.

[DogPatch]

As Canadians and Americans we are always told how uncompetitive we are. Imagine the competitive advantage we (as NA nations) lever if we had a made in NA price for oil that domestic needs could count one. $50/barrel or 25% less whichever is greater......... Imagine! and the Oil companies could still make an obscene profit.

[jensend]

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/22/ccoil122.xml

on bnn yesterday there was a canadian analyst who said a lot more paper oil than barrels of oil was being traded and the fundamentals indicate a justified price of about $80/bbl. oh well, volatile markets are more interesting aren't they?

[grassfarmer]

Sean our policy includes #1. (reduce fuel consumption) and #4 (invest in oil) from your list. It is working fairly well for us and the investment side valuations have more than covered the increases in oil product prices. The biggest threat I see to our business is the potential rise in our purchased feed bill. As this is produced/delivered on a custom basis by guys using a lot of huge machinery I don't want to be paying their fuel bill increases by proxy. Thus far locking in rented AUDs at @85c/day to reduce the number of days we feed next winter looks the smartest bet. As we were already down to just over 100 days winter feed period we obviously can't extend it too much further if we get any kind of winter weather.

[DogPatch]

Grassfarmer......

Have you priced out cattle mineral lately?

Our cost is up nearly $8 a bag since Feb 1. That cost in itself is up over 100% in the last 5 yrs

[cottonpicken]

Bang on farmers son.
Minus the gold crack.Nothing will ever replace it-ever.
Google oil/gold ratio for more info.

Their is infinitly more marketing intelligence here than at the marketing room.