Beef, It’s Not For Dinner

Maybe you haven’t noticed a change to the offerings at your family dinner table or the prices at your favorite restaurant, but meat prices have skyrocketed recently mainly due to droughts in recent years in Texas, America’s biggest state for cattle. Experts have cited the most devastating drought Texas ever saw in 2011, the driest year the state has experienced. But 2011 wasn’t the last of the drought, as Texas has experienced several other less severe droughts since as well as the rest of the southwest region. When adjusted for inflation, the price per pound for ground beef has hit $3.55, a 56% increase from just 2010. This drastic weather has dramatic reprecussions that all of America is now facing.

 What this drought means is that feed prices have gone through the roof, which in turn means that cattle ranchers are now forced to raise fewer cows. So, less cows being raised, that surely isn’t enough to see the highest prices for beef in 30 years is it? But there are more problems causing these prices increases, mainly due to emerging countries and economies like China who are now eating more beef. Meaning, the decrease in product (cattle) is corresponded with new, emerging economies. David Anderson, an agricultural economics teacher at the University of Texas A&M explains the surge in demand for emerging economies like China “One of the things that happens that we see in people everywhere: When their incomes go up the first thing they do is they upgrade their diets, and so that usually means eating more meat.” 


When you look at all of these factors in play, it’s a simple equation of a shrinking supply, higher demand, translating into record-level beef prices. But it’s not just beef that is seeing prices climb, according to CNN all other cow products like eggs, milk, and butter are being effected as well.

With the grilling and barbecuing season about to begin, you might be seeing more chicken, pork, or fish instead of those tasty cuts of beef, as it looks like these record prices are here for the longterm. Experts are predicting that high demand overseas will stay at a constant, so unless California, Texas, and the southwest region see some unexpected summer rain, be careful before selecting your protein.


Comeback of Subprime Loans

Wells Fargo’s first-quarter earnings brought into light a driving force of America’s economic recovery. Its 14-percent hike in profit was fueled in part by a surge in auto lending. The financial giant may have found the next recipe of profitable subprime lending.

The San Francisco-based company originated $7.8 billion in auto loans during the first quarter, a 15-percent upswing from the same period last year. Nationwide, auto loan debt per borrower has seen jumps for a consecutive of 11 quarters, according to report complied by TransUnion. Overall outstanding car loans have ballooned by a quarter from $700 billion in 2010 while mortgages and credit-card debt moved downward.
flow of auto loans

It was new auto sales that have boosted consumer spending during the past four years, says Professor Mian, of Princeton University, and Professor Sufi, of The University of Chicago. Their study shows spending on new autos increased by 40 percent in nominal terms from 2009 to 2013, twice the growth in other spending categories. When they take autos off the list, growth in nominal retail spending last year turns out smaller than that of a year earlier. See chart below for new auto sales and all other retail spending:auto leads spendingauto spending 12-13

The professors, however, dubbed the surge in auto purchase “another debt-fueled spending spree” because the rise is not justified by growth in income. Taking out a car loan could be an action prompted by greater confidence in the U.S. economy, but the fact that other lending sectors remain weak defies this assumption.taking credit

Another possibility is banks are tapping just another hefty market to beef up profit. Even though Wells Fargo lowered its minimum credit score requirements on loan from 640 to 600 as an encouragement for first-time and low-income home buyers, its mortgage originations dropped nearly 67 percent from the first quarter a year ago. Meanwhile, the company has been active in originating subprime loans to used car buyers. These loans generate higher returns but are granted to borrowers with low credit scores.

Last year, credit bureau Experian Automotive reported 27 percent of those who took out loans for new vehicles were borrowers with spotty credit, a record proportion since 2007. The figure was only 18 percent in 2009.

Fortunately for now, overall delinquency rate for U.S. auto loans has remained quite stable at about 1.14 percent during the past few years. But the subprime delinquency rate hiked to 6.12 percent in the fourth quarter of 2013, up from 5.73 percent a year earlier, according to TransUnion’s report.