Can you imagine it … $3.87 a gallon … for milk!
Is there no end to the lengths to which our nation’s farmers will go to make a profit? What’s next, $10 for a brick of cheddar --- a premium on extra-sharp --- a black market for Munster or Gouda? My wife and I have set up a bootleg churn in our garage, because even the price of “I Can’t Believe It’s Not Butter,” has spun out-of-control!
Yesterday, the Wall Street Journal reported that the Commodities Futures Trading Commission (CFTC), the federal agency that regulates the commodities industry, was launching a probe into milk price manipulation, and in particular, cheese futures on the Chicago Mercantile Exchange.
The CFTC alleges that the farmers’ cooperative that controls nearly one third of the milk in America engaged in illegal market manipulation. According to the Journal, the Justice Department is getting ready to charge the Kansas City based Dairy Farmers of
America (DFA) with variety of anti-trust violations --- including conspiring to suppress the price it paid for raw milk in the Southeast, while raising the prices it charged retailers. There are even allegations of secret payments to regulators.
Is nothing sacred? Who do these guys think they are … Exxon-Mobil?
The irony is so thick you could whip into a dessert topping. If the dairy farmers and their evil henchmen are facing prosecution, shouldn't the oil industry face similar investigative scrutiny?
Look, I’m a capitalist. I don’t begrudge anyone a fair profit. The operative term, however, is “fair.”
In 2003 when oil was $30 a barrel --- a time dinosaurs still roamed the earth --- the
average price of gasoline was $1.52 per gallon. Despite this modest price, Exxon-Mobile still turned a profit of nearly $21 billion on $246 billion in sales. Not to shabby.
I’m not going to pretend that I understand all of Exxon’s costs. But obviously, when gasoline was selling for $1.52 a gallon they were able to turn a nice profit.
Here’s the math. Don’t panic. You don’t need your calculator or abacus.
Ok, I’m going to go slow so that even our regulators and the math challenged (like me) can follow. In 2003, the average price for a barrel of oil was $28. There are 42 gallons in a barrel which means that price of a single gallon of oil was about 66 cents.
If the main ingredient in gasoline is oil, and Exxon was able to turn a significant
profit at an average price of $1.52 per gallon, that means that the aggregate cost of refining, distributing, marketing and tax was less than 86 cents.
Now, with crude oil trading above $125 a barrel and the average price of gasoline peaking above $3.80, Exxon still posted record profits of nearly $11 billion last quarter. At that rate, Exxon’s net profit for 2009 is projected at $44 billion --- more than twice what it made in 2003, when the average price of oil was only $28 per barrel.
I’m no genius. But if the price of oil went up and the cost of refining, distribution, marketing and tax remains constant, shouldn’t Exxon’s profits likewise remain in the same ballpark? Did Exxon or the other oil companies suddenly find a way to dramatically cut their costs, or is there something more nefarious at work?
So as you’re filling the bottomless tank on your SUV this holiday weekend, ask
yourself, who do I have to thank for this blessing. The list is long. Do I thank Senate Energy Committee Chairman Ted Stevens of Alaska or heap praise on the excellent work done by the “Secret Energy Task Force” convened by our own beloved Vice-President Dick Cheney, the former CEO of Haliburton.
The “Task Force” first met in 2001 when crude oil was trading at about $20 a barrel. Cheney and his group of "concerned" citizens didn’t meet again until oil hit $55 in 2004, $70 in 2005 and finally $79 in 2006. As far as we know, after their 2006 meeting, it was "Mission Accomplished."
Are the dairy farmers being investigated because they're less American than the boys at Exxon or Shell? From my limited vantage point, their only real mistake was that they didn’t have their own secret task force protected by “vice-presidential executive privilege.” Otherwise who knows … milk might have hit $5 a gallon without a single regulator batting an eye.
To learn more about my market recommendations, visit my website at:www.globewestfinancial.com.
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