Costs and profit

[cowman]

As our costs continue to rise and a slim profit becomes more elusive, how much more efficient can we become?
I define efficiency as keeping costs low and production as high as possible.
With fuel, electricity, natural gas rising like crazy we can be assured everything else we buy will go up? What can you cut back on to limit your loss?
Without a doubt the high cost of living is a problem for some people, but unfortunately for a young family it never seems to end? I find it ironic when you are young and really need the money...you have none...but when you are old and don't need it... you have lots!
While I see value in being cost efficient, I never let that get in having the standard of living I wanted. If I didn't have enough money I just worked harder and made more money! Had to do things a lot different than I may have liked, but that is life? There are always trade offs?
When I hear young people(and some not so young) bemoaning the fact they can't get ahead, I have to wonder do they really want to get ahead?
God gave everyone of us two hands and a head to think with, and we can all prosper if we use them? There really is no excuse to not succeed in Alberta if you are ready and willing and able?

[grainboy]

I agree cowman, although sometimes people set their sights too high and are disappointed because they can't attain them. By that I mean that some folks want to live a lot fancier lifestyle than they can afford .

[farmers_son]

We can work harder but we can work smarter. Canadians can simply work harder because of high gas prices or they can question if they are being ripped off at the pumps. Gas is cheaper in Vancouver than Edmonton, why is that?

We can work at another job to pay the electricity and natural gas bills or we can see electricity and natural gas are sky high, ask why this is, who is profiting, ask is it fair.

There is a huge transfer of wealth taking place right now, right here in this country. Should we just put the shoulder to the wheel, nose to the grindstone and work harder or should questions be asked about whether this is truly a supply demand situation here or are a handful of large companies manipulating the market to increase profits. Where is the money going, why the sudden change in energy prices?

Because when we are talking about gasoline, electricity or natural gas they are essential services. For most it is not a matter of cutting back, in a country like Canada we have to continue to use energy or our economy will grind to a halt. It is like charging for air.

[cowman]

Well gas isn't all that expensive in relation to other things? It probably has caught up to where it should be in relation to many other goods?
My neighbor is building a new house and is quite surprized that it is going to cost him close to 30% more than he first thought due to everything going up.
Gas in Red Deer is $1.15/liter. Gas in Camrose is still under $1. Gas in Ontario is $1.34? I don't know why it is cheaper in Vancouver or Camrose?
As long as America will buy our oil and gas at a good price it will have to stay high here? You wouldn't expect the oil producer to accept a lower price than what he could sell it for in the US?
Right now there are quite a few Americans up here buying calves...I hope you wouldn't suggest we have to sell them at a different(lower) price to Canadian feedlots?
Supply and demand works very well as long as the government stays out of the market. Eventually the supply will always strive to meet the demand? If the demand isn't there then we don't need as large a supply?
Farmers are caught in a very tough situation. What they sell is increasingly not getting the bills paid? If the government stays out eventually enough of them will quit and the remaining ones might just find they have a demand for their shrinking supply? The whole farmer philosophy of producing more and more to try to capture a shrinking profit is not sustainable. No other business in the world operates that way and it does not follow the laws of supply and demand?
However due to inept government the Canadian farmer has no other option but to see his situation sink further and further? As long as the Canadian government allows cheap subsidized imports to flood this country when ever demand starts to rise, the farmer is hooped.

[cowman]

The people hit hardest by the increase in gasoline and heating fuel etc. will be those on fixed incomes and the working poor. Young people starting out in lower end jobs will have a tough time and not all of them have the skill sets to get into a higher income bracket.
Seniors on fixed incomes without much in the way of savings will also be hit, but I don't include in that category the ones that have a whack of money squirreled away to give to the kids !!!!

[farmers_son]

Cowman: You say that Supply and demand works very well as long as the government stays out of the market. Are you aware of the Alberta Petroleum Marketing Board?

Supply and demand only work in functioning markets. Markets need competition to function. Whether it is cattle or oil the market fundamentals work the same. Markets cannot function in the midst of monopolies. There is not adequate competition in this province to have any kind of pretense of a functioning competitive market for electricity and we just watch our electricity costs rise. It has been clearly shown that the retail prices of gas is not justified by the situation in New Orleans or by market fundamentals.

The answer for Albertans and Canadians should not be necessarily tighten the belt and work harder when the problems are a result of non functioning markets and lack of competition to ensure fair pricing. The example of gas prices in Camrose is very appropriate.

[FarmRanger]

F_S said "It has been clearly shown that the retail prices of gas is not justified by the situation in New Orleans or by market fundamentals."

With 11% of U.S. refining capacity gone, I'm just curious who has clearly shown this and why haven't we all seen it?

[cowman]

farmers son: Yes I am aware of the Petroleum marketing board and I am very aware of how much the Alberta government spends to aid the oil companies in their business. Remember that the people of Alberta own the oil and as such should participate in the process...hopefully in a businesslike manner?
The whole point of any business(or any life for that matter)is you need to be able to adapt to circumstances? So guess what? If you are faced with a situation where something isn't working you need to be able to react? Unfortunately fighting the big corporations is unlikely to succeed? Probably banging your head against the wall for nothing?
If Cargill and IBP have a monopoly and very obviously the government likes it like that...what can you do? You can continue to get hosed, you can chase a pipe dream of beating them, or perhaps you can think of different ways to operate?...Or horrors of horrors you can move into something else that actually pays the bills!
Farmers tend to just work harder, take on more debt, produce more and get less! Is this really very wise?
If I lose money every year growing wheat, is it smart to keep growing wheat? Or should I try something different?
I see so many farmers and their families working way to hard for a pitiful return in conditions that are pretty tough at times. I don't see that getting much better?
I see men who have worked hard and are now older who really have little to show for their life? They missed a lot of the good things in life...but never fear when they die and the land is sold the kids will live it up!
How discouraging is it to slave away and slip further behind every year? While the rest of the world rolls on and prospers?
I heard barley has slipped below $2/bu? How realistic is that kind of price?
Is there any profit at that price? I would suggest on 1000 acres of barley you might(or might not) make $20,000? That is two months wages in the oil patch! This kind of return is neither sustainable or acceptable...unless you are just a hobby farmer doing it for fun!
But then people will say "Oh but I am my own boss and don't answer to anyone!" ...well until the banker comes calling and tells you this just isn't working!
My advice for any young person is get a trade even if you want to farm. The chances of farming becoming profitable in the near future is slim to none! Allow that off farm income to let you indulge your "farming addiction" because it really isn't much of a business?

[cowman]

Excellent advice, and I am seeing more and more young fellows heading off to either apprentice in a oil patch trade or going to Olds or Lakeland to take Ag Mechanics or some such trade that will allow them to both farm and make some off farm income. The son of the feedlot owner down the road just started at Olds taking Ag Mechanics. His goal is to farm with his Dad and set up a mobile truck to go out and to repair jobs on farms or anywhere else his skills are needed. He knows that that money will be what will allow him to have a decent living while still being involved in the farmily farm.

[cakadu]

You're right, cowman, if you can't make money at one thing you need to switch to something else.

$20,000 per year is 2 months work in the oil patch - right now. When things go "bust" again - and they will - that won't be the wage for most working in the oil patch.

I was talking about this with my spouse just the other morning over coffee. It is very reminiscent of the boom of the late 70's and early 80's. Wages then were very good and people didn't ever think it would end. That feeling is very much prevalent again. Only this time, there are some major differences.

In the mid-80's I happened to do a lot of paralegal work in the areas of mortgage take backs because many were hard hit when the oil patch crashed. Many people just walked away from homes because they couldn't afford them.

Housing then was about $75,000 to $150,000 for the fancier homes. Fast forward to today when it takes $175,000 just to get into a decent home in Red Deer and houses now range close to that $500,000 mark for the fancier homes. Think about what it takes for a mortgage to get into a house like that. It may be fine now because money is rolling in, perhaps both are working at decent jobs, but all it will take is for one to loose a job, illness etc. and it all comes crashing down. The saving grace right now is that mortgage rates are so low.

Couple that with the fact that you can buy absolutely anything on credit now, with nothing down, which is another difference from 25 years ago - there just weren't as many toys and doodads around.

Things are spiralling out of control and this type of activitiy is not sustainable over the long term. Yet, once again we see things happening like this will go on forever. Remember the famous bumper sticker about wanting another oil boom?!?!?!

[farmers_son]

Farmranger: I based my comment on that our gas prices were not justified by the situation in the United States on a couple of points.

First was an interview I saw Dan McTeague do on Canada AM where he said “that Canadian oil companies had jacked up prices almost ten cents a litre above international prices set by the U.S.”

McTeague went on to say “what they were doing should be outlawed.”
"We should have moratoriums on refinery shutdowns in Canada ... it creates artificial demand," he said.
"This is a recipe for government involvement to restore market forces."
McTeagues comments led me to try and find some accurate numbers on U.S. production.

Please see:
http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/txt/table11.txt

While there are a lot of numbers to pore through, some I noted was that although finished gas production was down in the Gulf region after the hurricane, production was also down at all but one of the other U.S. major refinery regions. Overall, U.S. production of finished gasoline was only down 4% from the previous weeks while supply of kerosene jet fuel was actually up 17% over the same period of time. Overall product supplied, finished gasoline, kerosene jet fuel, distillate fuel oil, propane was only down slightly over 2% from previous weeks.

And while some might say that a 2% decrease in total fuel supply might account for the 20-25% increase in the price of gas that conveniently ignores that the U.S. government released 60 million barrels of oil from its strategic reserves at the same time. All but 5 of Louisiana’s 17 refineries were reported back in operation September 9.

You might be interested in checking out this site:
http://www.columbusgasprices.com/retail_price_chart.aspx

It compares gasoline prices throughout North America over varying periods of time. The price of gas did not rise uniformly in the United States after the hurricane. In Lousiana, which should have been most affected, the price rose from $2.52 per U.S. gallon to $2.63 after the hurricane while in Rochester NY the price rose from $2.63 to $3.29. In Calgary the price of gas rose from $0.96 per liter to $1.12 overnight, a 119% increase.

[farmers_son]

I should have mentioned that McTeague is Parliamentary Secretary to the Minister of Foreign Affairs.

Please see: http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/1125576643773_51

[cowman]

Linda: I would suggest you aren't really up on the real estate market? The average house in Red Deer is $212,000! well that was last month...who knows where it might be now!
But I do agree with your analyse of the problem...to a certain extent! Barring federal intervention this boom is going only one way...UP!
For those of us who lived through the NEP, we know how the Canadian government can **** our region and literally destroy our economy? The bumper stickers(Please God give us another oil boom...we promise not to piss it away this time) are very appropriate today? But in reality what caused the end of the oil boom? Wasn't it defacto the federal Canadian government?
As in any supply demand situation there will be corrections? A false correction where the feds jumped in and destroyed the Alberta economy is hardly the real world? Hopefully the people of Alberta will never let those Eastern dogs **** us like that again?
I don't think eastern Canada ever realized just how much we resented being screwed, like the screwing we got with the NEP? Try it one more time...and I believe we will be ready to go?
My hopes and dreams....

[cakadu]

I'm not convinced that the feds would try anything like the NEP again. The GST is working just fine for them now in terms of bringing in additional dollars, which was something that was missing the first time around. The higher fuel goes, the more tax they collect, so why bother trying to get things in check.

Look at how much money the oil companies in this province are making on the price of oil right now. There appears as though there will be no end to the windfall. The higher things go, the further they have to fall.

But all is not rosy for everyone and that gap just keeps getting larger and larger. Many stuck in middle incomes are finding themselves sliding towards the lower end of the scale simply because costs such as heat, electricity, gas etc. are getting out of hand and not for any other reason.

We are also behaving as though the oil will never run out. It is a non-renewable resource and even though the estimates on when it will run out vary, there will come a time when even the best producing wells just won't cut it anymore.

For all intents and purposes, we are sitting at zero unemployment here in Alberta - it is at less than 4%, which is considered full employment. While the oil patch and related industries are booming, other businesses aren't faring quite so well because they can't find workers.

As near as I can tell, we are very much out of balance and everything, no matter what it is, tries to find an equilibrium.

[cakadu]

Linda, GST is one thing, envy of the wealth of Alberta is another. If the Feds get enough griping from some other provinces they may come up with some chocolate coated NEP. I certainly agree that the gap is getting larger between those with wealth and those that are just getting by.
As far as supply and demand for gasoline goes if a significant number of people start driving those goofy little Smart cars the demand will sure go down !! I could not believe the number of them in Vancouver. Somehow I just can't see them catching on in rural areas. In some of our highways they would disappear in a pot hole !