Thursday, April 24, 2008

Hard Times



Folks; This next article doesn't come from some paranoid Survival Rag, it comes from THE WALL STREET JOURNAL. As has been said before, oil is what drives our economy. When Dick Cheney decided to invade and occupy Iraq, oil was at $20 a barrel. It has now hit near $120. Cost of transporting food, commercial fertilizers and supporting infrastructure is skyrocketing. Economist Paul Krugman calls it "The end of cheap food". Here, as we enter the SECOND REPUBLICAN GREAT DEPRESSION, stores are rationing rice, and flour and cooking oil may be next.
Self-defense includes feeding your family:

Load Up The Pantry
Wall Street Journal
4-23-8
I don't want to alarm anybody, but maybe it's time for Americans to start stockpiling food.
No, this is not a drill.
You've seen the TV footage of food riots in parts of the developing world. Yes, they're a long way away from the U.S. But most foodstuffs operate in a global market. When the cost of wheat soars in Asia, it will do the same here.
Reality: Food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund. And there are very good reasons to believe prices on the shelves are about to start rising a lot faster.
"Load up the pantry," says Manu Daftary, one of Wall Street's top investors and the manager of the Quaker Strategic Growth mutual fund. "I think prices are going higher. People are too complacent. They think it isn't going to happen here. But I don't know how the food companies can absorb higher costs." (Full disclosure: I am an investor in Quaker Strategic)
Stocking up on food may not replace your long-term investments, but it may make a sensible home for some of your shorter-term cash. Do the math. If you keep your standby cash in a money-market fund you'll be lucky to get a 2.5% interest rate. Even the best one-year certificate of deposit you can find is only going to pay you about 4.1%, according to Bankrate.com. And those yields are before tax.
Meanwhile the most recent government data shows food inflation for the average American household is now running at 4.5% a year.
And some prices are rising even more quickly. The latest data show cereal prices rising by more than 8% a year. Both flour and rice are up more than 13%. Milk, cheese, bananas and even peanut butter: They're all up by more than 10%. Eggs have rocketed up 30% in a year. Ground beef prices are up 4.8% and chicken by 5.4%.
These are trends that have been in place for some time.
And if you are hoping they will pass, here's the bad news: They may actually accelerate.
The reason? The prices of many underlying raw materials have risen much more quickly still. Wheat prices, for example, have roughly tripled in the past three years.
Sooner or later, the food companies are going to have to pass those costs on. Kraft saw its raw material costs soar by about $1.25 billion last year, squeezing profit margins. The company recently warned that higher prices are here to stay. Last month the chief executive of General Mills, Kendall Powell, made a similar point.
The main reason for rising prices, of course, is the surge in demand from China and India. Hundreds of millions of people are joining the middle class each year, and that means they want to eat more and better food.
A secondary reason has been the growing demand for ethanol as a fuel additive. That's soaking up some of the corn supply.
You can't easily stock up on perishables like eggs or milk. But other products will keep. Among them: Dried pasta, rice, cereals, and cans of everything from tuna fish to fruit and vegetables. The kicker: You should also save money by buying them in bulk.
If this seems a stretch, ponder this: The emerging bull market in agricultural products is following in the footsteps of oil. A few years ago, many Americans hoped $2 gas was a temporary spike. Now it's the rosy memory of a bygone age.
The good news is that it's easier to store Cap'n Crunch or cans of Starkist in your home than it is to store lots of gasoline. Safer, too.

Write to Brett Arends at brett.arends@wsj.com

http://online.wsj.com/article/SB120881517227532621.html?mod=googlenews_wsj

13 comments:

Scott said...

Heavens to Betsy!
Food prices are very likely to go up. Thinking this is a crisis bad enough to stockpile food is pure loony.
If food prices tripled, Americans could eat cheaper food, cut their calorie intake in half and still have the same amount of discretionary income for porn and make-up.

Americans just might take an interest in Taijiquan as a method of improving food assimilation.

Hand2Hand said...

Hey DR,

Don't forget to stock up on pet foods (for our four-legged family members) and medical supplies.

As well as guns and ammo.

Not that I've spent much time thinking about the possibility of The Great Depression II. (LOL) But Republican administrations have that effect on me.

Formosa Neijia said...

Wow, I didn't know they were rationing rice. This is not good. Thanks for the WSJ article. I'm pretty concerned about this.

Formosa Neijia said...

I think Scott has a point too. Americans will likely become shrill because the price of beer and chocolate rises -- not exactly necessities.

I remember when the spotted owl mess was in the news and they interviewed a logger who complained that his family used to have steak every night but since they couldn't log too much over the owl business, his family would instead have to eat hamburger every night. Needless to say his obese family likely ate more meat in a single night that Ethiopians get in a month.

I also did some digging around and found that biofuels are making the food crisis worse:
http://www.nysun.com/news/food-
crisis-eclipsing-climate-change

But that doesn't surprise me much since biofuels are nothing but a scam any way. Al Gore goofs again.

Thanks to DR's post, I went out and bought lots of rice and oatmeal today, though. :)

Dojo Rat said...

I think that Ethanol from corn is a scam, with huge subsidies for production right now. But the biodiesel concept might work. For instance; Alge is the fastest growing biomass. It can be harvested from huge municipal sewage settling ponds. Perhaps even the immense amounts of feedlot manures could be put to use.
I am going to try to put together a short video on some of our local organic farms, which I believe is going to be an important trend in the way we choose our food in the near future.

Formosa Neijia said...

"I am going to try to put together a short video on some of our local organic farms, which I believe is going to be an important trend in the way we choose our food in the near future."

DR,
One of the articles I was reading on this topic talked about how organic produce will take a big hit because the crop yield is too low per acre.

Something to think about.

I also read that the rationing of rice was....ahem...limiting purchases to 80 lbs. a day per person. So not perhaps an emergency just yet. Apparently they were trying to prevent hoarding by restaurants. But doesn't mean it's still not a good idea to stock up and I'm glad I did.

Dave C.

Dojo Rat said...

Dave;
I think this event is a hint of what's to come later.
Food riots are very serious in developing nations now.
Also, I can see how large-scale organic farms may have lower yeilds, but not so for local, small intensive gardens. Much higher yeilds there, but with loving labor.
As the Wall Street Journal article said, the cost of food is rising faster than interest in a savings acount, so you can't go wrong by stocking up.
More on this later as the second republican great depression develops...
D.R.

Dojo Rat said...

Ah..
"yields"
--Plus, no oil-based commercial fertilizers...

Hand2Hand said...

Hey DR,

I like what you said about smaller organic gardens.

If things keep going as they are, I suspect we may see a return to the old "Victory Gardens" that helped many families make it through World War II.

I know it's something I've been reading up on lately. I have four large Live Oaks in my yard and I end up bagging up about 20 large bags of leaves a year. No lie!

I've always felt guilty about not composting at least part of that.

Here in Tampa, we have a great little organic farm called Sweetwater. I've met with the owner, Rick Martinez, several times. He's done some incredible production of almost everything but corn on only six acres.

I wanted to join his farm but the waiting list is just way too long.

But I know that Martinez has been in demand worldwide for his expertise. He's helped start some great local organic gardens and cooperatives here in the Tampa Bay area.

Dojo Rat said...

H2H;
You are on my exact thought track. Why haven't we been hearing about "Victory" gardens, anything at all?
Also, oak trees mine calcium more efficiantly than almost any other plant. If you do compost them it will be a mineral-rich compost.

Hand2Hand said...

Hey DR,

Thanks. We've gotten way to urban as a society. It's definitely not realistic to expect that people will be able to feed their families solely from their own gardens.

But it would supplement what they get at the grocery store or (better yet) farmers' markets.

Formosa Neijia said...

"Plus, no oil-based commercial fertilizers..."

Isn't that the craziest thing about ethanol?

They want to use corn, which takes massive amounts of oil-based fertilizer, to produce a fuel for cars. Why not just covert the oil into gasoline?

It's ridiculously inefficient.

Hand2Hand said...

Hey Dave,

It's because everyone connected with ethanol is convinced that they are only one technological advance away from being able to get more energy out of producing ethanol than you put into it.

I'm not saying it's not possible, but it's so uncertain I wouldn't bet on it.

We need a much more holistic approach to the energy situation, combining solar, geothermal, wind and water with much more energy efficient technology.