Posted on 06/01/2022 2:39:27 PM PDT by blam
In its effort to contain inflation, the Federal Reserve has launched what many expect to be an ongoing series of interest rate increases, which are already taking a toll on stock and housing markets, with job losses likely to follow. As weary as Americans have become from paying record high gas and grocery prices, however, another round of price hikes is making its way through the food supply chain and is expected to reach consumers this fall.
“People don’t realize what’s fixing to hit them,” said Texas farmer Lynn “Bugsy” Allen.
“They think it’s tough right now, you give it until October. Food prices are going to double.”
The 8.8 percent increase in food prices that Americans have already seen does not take into account the dramatic cost increases that farmers are now experiencing. This is because farmers pay their costs upfront and only recoup them at the point of sale, months later.
“Usually, what we see on the farm, the consumer doesn’t see for another 18 months,” said John Chester, a Tennessee farmer of corn, wheat, and soybeans. But with the severity of these cost increases, consumers could feel the effects much sooner, particularly if weather becomes a factor.
Lorenda Overman, a North Carolina farmer who raises hogs and grows corn, soybeans, and sweet potatoes, said the spike in fuel costs has put her farm into the red this year. “Nothing that consumers are paying is going to bridge the gap for farmers right now,” she said. “The prices now have not hit the grocery stores yet,” but she expects they will start to by the end of summer.
Much of the cost of food hinges on the price of oil.
“They have no electric trucks delivering that food and there are no electric tractors,” Allen said.
“It takes diesel to run all this.”
Chester said that fuel and fertilizer together make up 55 percent of his total costs. The price of diesel fuel has more than doubled, from $2.50 per gallon at the end of 2020 to more than $5 per gallon today. Farmers say the cost of fertilizer, an oil derivative, has tripled and in some cases quadrupled.
“When you look at the machinery that uses diesel, it’s farm equipment, it’s railroads, and it’s truckers,” said Daniel Turner, Executive Director of Power the Future, an energy advocacy group. Diesel “moves all of our goods, it grows our food. From cargo ships arriving from overseas to trucks or trains getting those goods across the country. All those things now have added costs that will get sent to the consumer.”
“That surge in food and energy costs is very demand destructive for U.S. households,” said Joseph Lavorgna, Chief Economist at Natixis, a European bank. “If you have to pay a lot more money for your food, to heat or cool your home, or put gasoline in your vehicle to get to work, there’s less money available elsewhere.” Price hikes in gas and food will leave Americans with less money to spend on other goods, which will reduce demand and have a knock-on effect on the wider economy.
Economic reports are indicating that Americans are already unable to keep up with inflation. Household savings fell to the lowest rate in 14 years, as people struggle to maintain their standard of living. Credit card debt is hitting record highs, and retailers say they are preparing for more consumers to limit their spending to the “bare-bones basics.”
While it is possible that Americans’ loss of spending power may help to reduce inflation, some economists fear a return of 1970s-era “stagflation,” rising prices coupled with economic stagnation and increasing unemployment. That period of inflation was ultimately tamed by the Fed raising interest rates to nearly 20 percent.
In contrast to the Carter-era energy crisis, which was sparked by an embargo from foreign oil producers at a time of declining American oil output, today’s energy shortages are largely the result of domestic U.S. government policies, as the Biden administration attempts to force Americans to switch from fossil fuels to wind, solar, and electric. This effort has included shutting down pipelines, suspending oil and gas leases, and putting up regulatory roadblocks—all of which has reduced new investment in American oil and gas production.
Last week, Biden stated that the spike in oil prices was “an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels.”
Energy Secretary Jennifer Granholm said last week that rising oil prices were “an exclamation point” for the need to transition to wind and solar and “build homegrown clean energy.” Granholm previously stated that “if you drive an electric car, this would not be affecting you.”
With natural gas prices now hitting a 14-year high, Biden’s Department of Energy recently posted “a few tips on how you can prepare your home and office to safely navigate a blackout.”(We're headed for third world status.)
Samantha Power, head of Biden’s Agency for International Development, said the solution to rising fertilizer prices is “natural solutions like manure and compost, and this may hasten transitions that would have been in the interest of farmers anyway. Never let a crisis go to waste.”
“That’s not the real world,” Overman said. “We are in the highest density for hog production in the nation and there’s not enough hog manure or turkey manure or chicken manure to fertilize our crops. We tried this fall to lock in some chicken and turkey litter to spread on our crops and there’s none to be had. There’s just not enough animals to produce the amount of fertilizer we need.”
“Energy is a very capital intensive business and we’re basically down to about half the level of cap-ex within energy that we had a couple years ago,” Lavorgna said. “A lot of that has to do with the fact that oil companies are not tone-deaf to what shareholders want, or more importantly what the regulators and politicians want.”
“It’s incredibly curious that of all [Biden’s] rhetoric, I have yet to hear anything along the lines of ‘we will do everything to increase production in America.’” Turner said.
“They are comfortable with the current state because of their green philosophy, and we’re just necessary casualties.”
Together with ruptures in global supply chains, oil and food prices are a key reason why many economists think the Fed will have a particularly hard time taming inflation. “There is a real risk the price [of gas] could reach $6 a gallon by August,” Natasha Kaneva, head of global oil and commodities research at JPMorgan Chase, told the press. “U.S. retail price could surge another 37% by August.”
The higher prices climb, the more aggressive the Fed will need to be to contain inflation.
“We think the risks are skewed towards a much more significant recession, as inflation proves more persistent than is generally expected … the moves from the Fed currently envisioned by markets will be too slow to restrain inflation,” stated economists from Deutsche Bank in a research report titled “Why the coming recession will be worse than expected.”
“A mild recession would be a relatively small increase in the unemployment rate,” Lavorgna said. “If, however, the Fed feels that it needs to compress demand further, then we are looking at a much deeper recession, with the unemployment rate perhaps doubling, if not more.”
One of the unique features of the current economic crisis is the extent to which it is driven by government actions, as opposed to a market failure. This includes trillions of dollars in federal spending to prop up an economy reeling from draconian government lockdowns that now appear to have had little success in containing the coronavirus. This spending was compounded by the Federal Reserve holding interest rates near zero while expanding its balance sheet to $9 trillion, flooding America with cash. These problems were then further exacerbated by the Biden administration’s re-regulating of the economy and its antipathy toward America’s fossil fuel industry, together with a western boycott of Russian oil and fertilizer exports following Russia’s invasion of Ukraine.
Inflation is the result of too many dollars chasing too few goods, and, in this case, it has been a “perfect storm” on both sides of the equation. As the Fed works to cool demand by raising rates, some economists say the Biden administration must reverse the policies it has put in place that are undermining productivity and holding back supply.
“If you want to address the inflation problem, you do it through the painful way of Federal Reserve action and higher interest rates and borrowing costs,” said Jonathan Williams, Chief Economist at the American Legislative Exchange Council. But simultaneously, “you do it through the supply side, which reduces taxes and gets productivity back up across the United States.”
Given the federal government’s reluctance thus far to take the necessary steps, some states have stepped up with their own solutions, Williams said. Since March, four states—Iowa, Mississippi, Georgia, and Arizona—have gone from progressive income tax rates as high as 8 percent to flat tax rates in the range of 2–4 percent. North Carolina eliminated business income tax, and nine other states currently have no state income tax at all.
On May 17, Sen. John Barrasso (R-Wy.) and other GOP Republicans introduced the ONSHORE Act, which would give states the power to manage oil and gas production on federal lands within their borders. They simultaneously introduced the Lease Now Act, which would require the Department of Interior to resume the sale of oil and gas leases.
Asked what Biden could do to help farmers, Allen said “lower the fuel prices. It will save the middle-class people. It will help them when it comes to buying food.”
$5.79 for regular here in Scottsdale. Good thing I drive a 15 year old clunker - my son’s car needs premium!
Thank goodness for the Fry’s discount for spending $$ there on food, when you can find some!
$4.34 is a bargain. Gasoline and diesel is almost $7.00 in California. And Ca grows 80% of vegetables and fruits in the nation.
$5.79 for regular here in Scottsdale. Good thing I drive a 15 year old clunker - my son’s car needs premium!
Thank goodness for the Fry’s discount for spending $$ there on food, when you can find some!
Definitely a plus when you can find enough food to buy to make a dent in the price of gas. I also found gas at 4.94/gallon at Costco in N. Phoenix, although that was about a week ago so I’m sure it’s higher now.
“JPM Sees Oil Rising Up To $136 This Month Depending On What China Does, As Trader Bets Millions On Crude Explosion To $200”
I saw the CEO of one of the oil drilling outfits on Varney this morning. He was predicting $150/bbl by the end of the month, and a $6/gal national fuel price average. I pray he’s wrong...but I don’t think he is.
23% increase if my math is right.
L
Fuel and food prices seem ever on the increase since biden. All voters are about to be very unhappy, especially biden voters, is the tale told. Instead of only the strong survive, we may be going toward only the wealthy survive ? Fun times ahead without the laughter, it does appear
It was extreme sarcasm.
So on top of everything else we are going to have to carry the burden of the layabouts who want to be paid for telling us how great a green economy will be even though productivity will suffer and costs will really go through the roof.
Elected Republicans need this talking point: Biden must appoint Donald Trump to lead a nonpartisan emergency management task force to address the fuel and food crisis.
Biden won't do it, but make Biden take to the airways and say to the American public - “There is no energy crisis. There is no inflation. Everything is fine!”
Well no inflation if we horizontally substitute worms and boiled grass.
I buy pretty much buy the same stuff at the grocery store every week. It’s just the two of us to feed, so you’d think that would be pretty simple, Right?
Nope. While I haven’t experienced any shortages of anything, my bill for the same groceries every week is up $50 a week, or $200 a month as of now.
We grow and can a lot of our own food and raise our own meat, which helps a lot. We eat simply and don’t entertain a lot other than family at the holidays - and that’s usually Pot Luck; everyone brings something.
$200 a month now is uncomfortable, but manageable. $400 a month is going to be VERY noticeable.
And don’t even get me started on what gasoline costs! Ugh!
All of this is so easy to fix. Reverse any and all of Brandon’s Executive Orders pertaining to oil and it will all magically take care of itself.
But, that’s not the plan, obviously.
The Dollar Tree store went from one dollar to $1.25.
That’s more than 8 percent too.
When I was a kid in the burbs of Chicago, we had the biggest snowstorm Chicago has ever had. Eventually the whole neighborhood ran out of food. The neighborhood dads took all the neighbors’ food lists, shoveled their way to a plowed road, took their kids sleds and walked miles to the closest grocery store.
Everyone became food hoarders ever since!
Started stocking up last fall.
The food inflation is a lot larger that 8%! More like 30%.
“...as people struggle to maintain their standard of living.”
Well, that’s the FIRST problem. If you haven’t been living BELOW your means for all of your adult life, you’re really going to take a hit, now. And it’s gonna hurt. Bigly.
Carter II on steroids! 2008 was child’s play as far as you losing on investments and savings. I’m well diversified, but my PMs are NOT filling in the gap of my other investments. :( Dollars/metals are running scared like a pup that’s been scolded.
Plan accordingly, FRiends.
Can't say for how long. They want us sitting in the dark hungry eating bugs.
EAT THE BUGS: UK Schoolchildren Fed Insects to Encourage ‘Sustainability’
I thought so but there are a few on FR that do think that way.
blam :" Get ready for blackouts, massive theft and riots. Democrats want to eliminate oil and gas. We lose everything.
My gasoline fill-up today was $4.34 a gallon, about 15 miles west of Mobile.
If I can get through another hurricane season unharmed, I'll face the (EVEN) higher food prices in October.
We need Trump NOW!
(From the article):" “Usually, what we see on the farm, the consumer doesn’t see for another 18 months,” said John Chester, a Tennessee farmer of corn, wheat, and soybeans.
But with the severity of these cost increases, consumers could feel the effects much sooner, particularly if weather becomes a factor.
Lorenda Overman, a North Carolina farmer who raises hogs and grows corn, soybeans, and sweet potatoes, said the spike in fuel costs has put her farm into the red this year.
“Nothing that consumers are paying is going to bridge the gap for farmers right now,” she said.
“The prices now have not hit the grocery stores yet,” but she expects they will start to by the end of summer."
"Much of the cost of food hinges on the price of oil."
H/T to blam for the "heads up" !
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