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Sunday, August 15, 2010

Storm Brewing?

I'm on the mailing lists of probably two dozen or so emergency preparedness company newsletters.  These folks sell everything from food to equipment to ammunition.  Probably 6 months ago, I mentioned to a friend that it seemed like everyone was having a sale.  Free shipping morphed into free product or serious discounts.  Many were having Going Out Of Business sales.

I figured this was potentially due to a few things:
My guess was that the answer was probably a bit of each.

I got an interesting email letter yesterday from  I have made a number of purchases from them in the past, and have therefore been on their mailing list for quite a while.  I mention this because this guy makes a comment about not being a Chicken Little.  And he's right - I can't ever recall him making a comment about broad economic issues.
Rather than push conspiracy theories or stretch the truth to try and make you believe something is worse than it really is like many in my industry do, once in a blue moon if I think the situation warrants it, I will just pass on the facts to you and let you make your own decisions with regard to what impact (if any) it may have on you and your family instead of trying to insult your intelligence by telling you what I think it may mean to you.


OK, so let me get off my soap box and get to the point/pass on the news. I'll bet I'm not telling you anything that you have not already heard or seen at your local market with your own eyes, but because I am now seeing it with our vendors, suppliers and products personally, I need to let you know that we're going to be facing some large cost increases on many food items in the near future.

You've already seen/heard me tell you about increases in worldwide dairy prices, and you've seen first hand what it is doing to things like our Canned Butter and Canned Cheese, but it looks like our Canned Meats are next, as we are seeing dramatic spikes in costs and demand at the producer level which will mean that in the near future I am going to have to pass on some potentially large price increases to you - probably in the next week.
He doesn't discuss what he thinks is causing these price increases.  I think I know what's going on:  I think this is like a micro-economic view of what will be coming in the broader macro-economy.

As we've discussed before, it is very common for there to be deflation - price decreases - prior to the onset of inflation - price increases.


Quite simply, people have less money to buy stuff, so demand goes down.  The farmers, manufacturers and processors over-produce based on historical demand, and the product sits on the shelves.  The retailers have to sell it at a discount to get rid of the excess stock.

During the next business cycle, the farmers, manufacturers and processors have less demand than before, but they still must make a profit to stay in business.  So, they make less product, but charge higher per-piece prices.  Hello, Inflation!

I think that may be what we're seeing in the small "survival food" market.  There was low demand so they almost gave the stuff away.  Now, the next business cycle is coming on line, but the cost-per-piece is going to skyrocket if the producers want to stay in business.

The writer of the newsletter discussed some prices that have been increasing in the consumer food markets.  Personally, I haven't seen it.  I see the prices for processed and unprocessed food either being stable or decreasing.

Rice, sugar, wheat, corn and any type of bean haven't moved an inch, and pork, chicken and beef have all recently dropped in price.

Is this because we currently have surpluses that exceed demand?  Is this the start of the deflationary price drop that precedes the inflationary period?

If any of us could answer those questions with certainty, we'd be rich enough to not need to worry!

He also made an interesting point worth noting.  The price of shipping is going up, as is the price of packaging. 
It is also important to note that with canned foods there are more than just the costs what's in the can to consider. Steel, which is obviously used for the can itself, has risen in price dramatically over the last year. Corrugated/cardboard costs have also risen just as dramatically in the last 18 months. We obviously rely on cardboard for the case packaging as well as for the outer shipping box and inner packaging materials/void fill. The costs for cardboard and paper products are mainly driven by fuel prices today since the process of harvesting the timber, transporting it to the mill and powering the machinery used in producing the finished product still rely very heavily on fossil fuels.
This could all just be his company's way of trying to justify a price increase that was actually caused by something else.  Who knows?  It rings true to me, but it could just be playing into what I expect to hear more and more in the coming months.

Some things are increasing in price - gasoline most recently.  But most other things seem pretty well priced right now.  My gut says it's just the calm before the storm.

Also, it was recently announced that Russia has halted all wheat shipments.  Their recent wild fires consumed 20% of their crop.  I would expect to see raw wheat and wheat products increase in price because of this. 

These types of shortages also tend to increase the prices of alternatives as demand is shifted to the other products.  For instance, you may give up making or buying wheat bread and switch to corn bread or tortillas, causing an increased demand for corn.

And of course, the 800 pound gorilla that's sitting on your chest is the federal government.  The Federal Reserve just announced that they will increase their "quantitative easing" (printing up money out of thin air) and monetize our debt (they will buy US Treasury bonds with the money they created).

All of that by itself is going to cause inflation.  Couple that with inflation caused by a horrible economy and you're looking at hyper-inflation.

If someone - ANYONE - can explain how this won't happen, I'd love to hear their rationale.  As I've said before, to me, it's just a matter of figuring out when it will happen, not if it will happen.

Accept The Challenge

Has the broader economy hit the tipping point?  It's tough to tell right now.  Things like the survival food industry announcing coming increases might be an indication, or it might not be.  We'll only know the real answer sometime in the future.

In our last post, we had an article in the Wall Street Journal that discussed 10 things to keep our eyes on.  I think this is a prudent thing to do.  Our job is to take in the information and validate it.  If we hear distressing information, check the sources and assumptions.  If we hear up-beat information, do the same.

With either type of information, consider the source.  Does the "reporter" have a reason for spinning the information in a particular direction?  Political reasons, economic reasons, societal reasons.  Consider them all.

And that includes the information you read here.  PLEASE, don't take my opinions as the final word.  That would be insane.  Take them as a starting point or to augment your own research so you can come up with your own opinions.

Those personal opinions will shape your plans, and your plans will result in action.  THAT'S what is important.  Don't be a passive spectator in how your life is affected by events that are beyond your control, be an active participant.

I'm personally on a purchasing campaign of my Four "B's" of emergency prep - Beans, Bullets, Band-aids and Bullion.  Prices are good right now, and I'm stocking up while I'm able to do so.

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Ryan said...

I don't know how much is food prices at large and how much is the survival foods industry. I think a lot of people get into the survival food game and find themselves unable to make it work. Lots of folks with relatively similar prices and products. They don't have the purchasing power to get the same prices as the big established guys or the marketing. Then they have 50 cases of Mountain House to unload.

Chief Instructor said...

Ryan, I think that's a huge part of it. It's a specialty market with a limited audience. I think it's primarily the producers for this market retrenching and raising prices because there are fewer buyers of their product.

Anonymous said...

I am very aware of the risk of buying into the worst fears of those who expect the world to end soon. However, at age 67, I have seen good times and bad times and heard literally thousands of stories from those who lived through the great depression and in my humble opinion this recession and this economy is different from anything I have seen in the past. Is it the beginning of another great depression? I don't know, but I remember what my mother told me when she explained how the family failed to prepare for the great depression: She said quite simply that no one expected it to get so bad or last so long. Everyone thought it would be over soon and/or that the government would do more then it did. They couldn't tell the difference between the beginning of a recession or a depression. It was only after they were well into it or after it was over that they could fully understand what was going on. It's also worth noting that nothing the government did got us out of the great depression. It was WW II that changed the economy and brought back jobs. I do not believe our government is doing anything correct to bring us out of the recession or prevent a depression, in fact I think they are intentionally doing the wrong things. We may not get an exact repeat of the great depression but that does not mean it will go well, it could be worse. In 1929 50% of the population of the U.S. worked in an agrarian society today that number is 2%. What will everyone do when the food store shelves are empty? I don't want to repeat history and fail to prepare for seven years of famine just because I don't know with absolute certainty that the next great depression has already begun.

Chief Instructor said...

Anon, great points. One of the reasons I'm in constant storage mode is because of what you discussed - farms are concentrated in the hands of the very few. Not to go too far out into left field, but that was one of the major points of the Communist Manifesto. Ownership has been centralized, making it much easier to nationalize.

Let's have one major farm disaster, and the feds can "justify" nationalizing the industry. It would be in our best interest, after all.

Agriculture is key to communism. It is included in 3 of the 10 points of the Manifesto. They understand EVERYTHING hinges on food.

As an aside: I find this fascinating and frightening: I just went to Wikipedia to get a link for the Manifesto. I've done this many times in the past. They used to include the entire "10 Planks" portion on the site.

The list is gone now. In fact, they're not even mentioned in the Wiki article.

Does this mean, "Mission Accomplished" or is it another technique for keeping the masses uninformed about their plans?