Food Deflation Driving "Least Profitable Year In 20 Years" As Farmers And Grocers Get Crushed

Tyler Durden's picture

Sinking food prices, while good for the consumer, is devastating for almost everyone else in the supply chain from the farmer all the way to the grocers.  Farmers suffer as their key input cost, labor, is actually increasing in many states from the rash of minimum wage hikes around the country while fuel seems to move wildly with any number of daily rumors about production freezes in the middle east.  Meanwhile, grocers suffer as already thin margins get compressed even further as existing inventories get marked down. 

Food prices have come under extreme pressure in 2016 due primarily to lower Chinese consumption resulting from a weak Chinese economy and a strong U.S. dollar.  This slack in demand has resulted in massive supply gluts for several commodities as producers failed to adjust supply quickly enough to meet new levels of demand.  In fact, the USDA recently provided a $20mm "bailout" to cheese producers and reports have surfaced that milk producers have been dumping excess milk on fields. 

With the base inputs of corn, wheat and soybeans all tanking, food deflation has been pervasive with almost every commodity down substantially YoY. 

Proteins, which represent nearly 20% of the typical consumer's shopping basket, are trending flat to down 8% so far in 2016.

Food Inflation - Proteins

 

Dairy and grains are down mid-single digits YoY while egg prices have crashed as suppliers added tons of excess egg-laying capacity in response to last year's price spike related to the avian flu outbreak in the Midwest.

Food Inflation

 

Fresh fruit and vegetable prices have held up better presumably because consumption is less dependent on the export market.

Food Inflation

 

Meanwhile, alcohol prices continue to be the most stable of pretty much any item in the typical shopper's basket.

Food Inflation

 

Farmers are among the hardest hit when food prices decline.  In fact, we recently wrote about how sinking ag commodity prices in the Midwest were resulting in substantial declines in ag land prices and farmer incomes which then translate into an increase in farmer credit defaults (see "Farmland Bubble Bursts As Ag Credit Conditions Crumble").  Within that post we noted that farmland prices in Chicago's 7th District (IL, IN, IA, MI, WI) declined in 2014 and 2015 after only dropping in 4 other years since 1965.

7th District

 

As the Wall Street Journal pointed out, farmers have been forced to dump "millions of pounds of excess milk on to fields" while the USDA provided a $20mm "bailout" to cheese producers. 

The glut is so severe in some places that dairy farmers have been dumping millions of pounds of excess milk onto fields. The U.S. Department of Agriculture just bought $20 million worth of cheese in response to hard-hit dairy farmers’ requests. The cheese was given to food banks and others through USDA nutrition-assistance programs.

 

Ben Moore, a sixth-generation farmer who grows corn and soybeans on some 5,000 acres in Indiana and Ohio, said 2016 is shaping up to be his least profitable year in 20 years. Facing weak crop prices, he is making do with his current tractors and combines rather than upgrading his equipment, and is pushing for lower prices on pesticides, seeds and fertilizer.

 

On Monday, corn futures, which peaked in 2012 at more than $8 a bushel, closed at $3.11 ¾ a bushel, a seven-year low, on the Chicago Board of Trade.

 

“We cannot withstand $4 a bushel corn,” Mr. Moore said.

 

Farmers who had built a nest egg after a robust period earlier this decade now have exhausted those reserves, said Karl Setzer, a market analyst for MaxYield Cooperative, a West Bend, Iowa, grain marketer. “The guys that are heavily leveraged and those who don’t have a plan of action will suffer for a while.”

But farmers aren't the only ones to suffer during a deflationary food environment.  Grocers also suffer as tiny margins get compressed even further as existing inventories get marked down to prevailing market prices.

Falling costs are taking a toll on many food retailers. Grocery stores already have thin profit margins and deflation tends to reduce the value of their inventory. To stay competitive, they must cut prices on existing goods before lower-priced staples land on the loading dock, and have fewer opportunities to raise prices.

 

At least six national food retailers, including Costco Wholesale Corp. and Whole Foods Market Inc., and four of the five largest publicly traded food distributors, including Sysco Corp. and US Foods Holding Corp., have reported that their margins suffered in the last quarter because of food deflation, the first time analysts can recall so many grocers singling out deflation as a big problem.

 

“Deflation is kind of the elephant in the room,” Dennis Eidson, chief executive of SpartanNash Co., which operates 160 grocery stores from Colorado to Ohio and distributes food to 1,900 retailers across the country, told investors this month.

Meanwhile, consumers are the key beneficiaries of food price deflation.

With weak U.S. consumers shunning eating out more and more over the past year....

Restaurant

 

The combination of stagnant real earnings and lower retail food prices have provided the necessary incentives to drive the highest QoQ increase in real consumption of "food for home consumption" since the 80s.

Food Basket

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gimme soma dat's picture

Sinking food prices?  WTF.

Deathrips's picture

I regularly get 5 shopping carts full of high quality food for 100$!!!

 

DEFLATION IS HERE!!!!!

 

RIPS

Seek_Truth's picture

Hear that?

It's the sound of the world's tiniest violin.

Please- MOAR deflation!

hedgeless_horseman's picture

 

...dairy farmers have been dumping millions of pounds of excess milk onto fields.  


As a producer, we can deal with deflation or inflation just fine.

mrs_horseman uses "excess milk" from our family milk cow to make a wide variety of cheeses.

Add that cheese to mushrooms from the pasture (Lepiota americana)...

Along with eggs from our chickens and veggies from our garden, and we get some amazing omelettes.

espirit's picture

Am sorry to all here, but I don't buy in to this horseshit article.

Bring it mark to market and let it shake out.

Middlemen and Banksters need to be eliminated.

bleu's picture
bleu (not verified) espirit Aug 30, 2016 10:15 PM

Deflation? Pffft!

bleu's picture
bleu (not verified) bleu Aug 30, 2016 10:15 PM

Too bad America is NEVER getting better. http://wp.me/p4OZ4v-3z

FireBrander's picture

"grocers suffer as already thin margins"

STFU.

Hy-vee, a regional grocery chain "suffering" with "thin margins" handed it's CEO a $16,000,000 "compensation package"...enough with the "Poor, suffering, corporations"; BULLSHIT!

Again, a large chunk of the workforce are the "working poor"...whom then turn to the state for welfare to cover what the job doesn't pay....you my dear Rightwing, Leftwing, Nowing fucknuts are subsidizing these corporate "profits' via the "welfare state".

Without SNAP, Medicaid, Section 8, WIC, ect...this "CEO" would not be "earning" $16,000,000.

FireBrander's picture
COSTCO WHOLESALE CORP:

 

$6,265,065 = Board Chairman

$3,685,431 = CFO

$3,628,282 = COO

$3,613,091 = COO #2

$6,306,805 = CEO
 

"Suffering with thin margins" my ass; 6 guys knocking down $24,000,000 a year.

When these fuckers take the bus to work; then I'll listen to this "suffering" bullshit.

Wile-E-Coyote's picture

These fuckers will never take a bus to work, they will pay their workers in food coupons before they will cut their salaries, where have you been the last 8 yrs.

Has anyone considered people are buying less because they can't afford it; See food banks.

When the middle classes start buying from bargain basement supermarkets you better watch out. I know a few arses that a few years ago used to look down their noses at the likes of Lidl and Aldi, they are shopping there now.

FireBrander's picture

I regularly see relatively new Mercedes and BMW's at my Aldi's.

Adli's has stepped up their game, but still too much of the food is trailer park stuff that makes Walmarts "Great Value" stuff taste gourment in comparison

natxlaw's picture

That's a good point. The fing free money has probably been putting downward pressure on all the commodity prices. 

ZD1's picture

Eliminate .gov interference as well.

nmewn's picture

Yes...but I did have to look closer for the purple ring on the mushroom.

You're good to go ;-)

El Vaquero's picture

I don't have enough faith in my mycology skills to pick mushrooms, though in one of my beds that I left fallow this year, I put a large quantity of manure on it, and noticed what look suspiciously like Liberty Caps growing.  It was kind of funny, because I couldn't find a matching mushroom listed anywhere in the category of mushrooms that grow from manure.  There was, however, some dead grass right underneath the spot that it was growing, and it was listed as a mushroom that will grow on dead grass.  

 

And no, I did not test it to see if it really was magic;)

hedgeless_horseman's picture

 

I don't have enough faith in my mycology skills to pick mushrooms...

The Metzlers' book is fantastic.

She brought in some Oudemansiella radicata, tonight, but they aren't nearly as good.

Seek_Truth's picture

Reference manual + Spore Print on slide + Microscope = safe mycology.

RIP Euell Gibbons.

PS- I've picked many kilos of wild mushrooms in my life, never got sick.

PPS- http://wildfoodgatherersguild.org/blog/wp-content/uploads/2012/06/Mushro...

https://www.google.com/#safe=off&q=mushroom+identification+guide

 

Miffed Microbiologist's picture

I took a medical mycology and a field mycology class in college. I must say the field mycology class was the most fun. One day my instructor bounced into the lab exclaiming " Class, we have vomit!" Apparently she was Washington state's diagnostic mycologist for mushroom poisoning. Several children had eaten mushrooms from a lawn, had their stomachs pumped and we got to look for spores and parts to help in identification.

Mushroom collecting is fantastic in the Pacific Northwest. I collected so many varieties including several species of Amanita, Psilocybe, boletes.etc.

We had a party at her house and had a wild mushroom feast at the end of the year. Dr Grey did say there were old mushroom collectors and bold mushroom collectors but no old bold mushroom collectors. Also you can spectate a mushroom correctly but it has mated with a toxic strain which could cause illness. Makes me pause when I picked some shaggy manes a few years back.

Not too many mushrooms here. Primarily puff balls and agaricus bisporus. Did find some Turkey tail once but a guy claimed it was his stash and I wasn't up for the fight. Got The Fungal Pharmacy for my birthday last year. Extremely informative about the medicinal aspect and chemical analysis of mushrooms. Must read for science nerds.

Miffed;-)

Seek_Truth's picture

1- I was taught by experts when in my teens on how to discern, in PA:

Pinks (Meadow Mushroom)

Chanterelles

Lion's Mane (tastes like crab)

Chicken of the Woods

Yellow Morels

Common Puffballs

 

2- I was taught by experts when in my teens on how to discern, in FL:

Psilocybe/Stropharia cubensis

 

The former are delicious, and bring in good $.

The latter aren't as delicious, but bring in much more $$$.

;-)

 

 

Miffed Microbiologist's picture

We have a man here in San Diego that has successfully cultivated Lions Mane. He has a environmentally controlled room. Still he's hit or miss. When he's got them I grab them. Sautéed in ghee is delish!

I've made a tincture with Lions mane, Reishi, Cordyceps and turkey tail. Probably why I'm always bouncing off the walls. Last year had abdominal surgery and I was having fevers at night for days. My dr was worried. My herbalist recommended Changa tea. Never had another fever. Needless to say I'm a big believer in mushrooms.

You'd be surprised how many people wanted to buy my Amanita muscaria and Psilocybins. I never sold them, not wanting to be responsible for their stupidity.

Miffed

Seek_Truth's picture

I stopped selling Psilocybe before I "grew up" and went to College, many decades ago.

It helped me partially pay my tuition, though.

Never saw much demand for Amanita in my neck of the woods- even though it's abundant.

Nasty vomiting- like getting mescaline from peyote buttons- unlike Psilocybin.

flaminratzazz's picture

Mushrooming is easy,, first off there is only a handful of deadly kill you right there varieties. One is the destroying angel which is an amanita easily recognized that i had in the yard this year and the other is the deadly gallerina, hence you don't touch lbms (little brown mushrooms).. so the easy way to test a shroom is the 2 bite method after you have made certain you know the DRT (dead right there) strains and how to identify them.. On an empty stomach, take 2 small bites and wait 30 minutes to see if you get cramps or if your dick falls off or ? If nothing happens you are usually good to go.

Seek_Truth's picture

You've been lucky.

Many a man has died doing just what you've stated, including a  world renowned expert, Euell Gibbons.

There are mushroom varieties that, taken in small amounts, are generally asymptomatic, yet will destroy your liver and kidneys over a two week period, then you die.

The ONLY wild edible mushroom that is 100% foolproof in the Mid-Atlantic, where I live, is the Common Puffball.

All you have to do is slice it in half- if any brown, pitch it, if it is pure white- it makes for a reall treat sauteed with wine, butter, salt, pepper, onions, and garlic.

flaminratzazz's picture

He ate the gallerina hence he contracted the deadly delayed syndrome is my bet. THAT is from lbms so obviously he didn't know his species.  we get puffballs here too and I eat them and shaggy manes, morels, coral and cauliflower , oysters, chantrels..etc.. I know the deadly ones and eat only things that are safe.. never any lbms of any kind. but on occasion I will do the 2 bite method to test something I am unfamiliar with. If it looks like a keeper I will do the spore print and then dig through photographs and books-net to find out what it is. In the Pnw we have more different mushrooms than about any place on earth.

UmbilicalMosqueSweeper's picture

Some people have allergic rections to puffballs and other fungi that do not bother others.  Note of caution...even with mushrooms that are considered to be safe, it is wise to stay away from alcohol during your meal.

Miffed Microbiologist's picture

Classic Amanita phalloides poisoning.

We had a whole Vietnamese family die from picking and eating them when I was in college. Apparently they resemble a mushroom in Vietnam that is edible. Now they use extract from Milk Thistle to protect the liver.

Miffed

Seek_Truth's picture

I've heard of similar accounts in my life.

When picking Psilocybe cubensis with friends, in my teens, I had a not too bright friend that had mistaken what I think were a few Deathcaps that he ate, and found him puking them up in a pile of fire ants.

You can only imagine- puking while being bitten all over by fire ants!

He (miraculously) lived, and we all had uncontrolable laughter.

Good times.

Memories.

Golden Phoenix's picture

Euell Gibbons died of an aortic aneurism. Agreed on the rest though.

Jim Fixx, the man who first popularized jogging for health, died of a massive coronary while jogging.

No one ever got hit by a car sitting in a chair.

Seek_Truth's picture

That's the first time I heard that it wasn't mushroom poisoning that killed him.

Searched, and found this:

http://foragersharvest.com/into-the-wild-and-other-poisonous-plant-fables/

Interesting analysis.

Thanks.

flaminratzazz's picture

knowing things like the deadly mushrooms and what hemlock looks like could become really handy in certain situations.

Seek_Truth's picture

You got it.

That's poison hemlock, of course, NOT Hemlock, the tree (Tsuga) the needles of which, like all pines, when reduced in tea, are full of sugar and vitamins that will keep you going in a pinch.

Also deadly poison: monkshood, foxglove, datura, henbane, deadly nightshade, etc.

Might just come in handy.

El Vaquero's picture

https://s-media-cache-ak0.pinimg.com/736x/53/fe/68/53fe6849c624d83c321d5...

 

or if your dick falls off or 

 


Oh man, I do have quite a few little brown mushrooms too.  

flaminratzazz's picture

do not touch the lbms..evah!

DownWithYogaPants's picture

I want a mushroom that makes my dick bigger. ( not fall off ) 

Ever eat a pine tree?  I have!

Golden Phoenix's picture

Grass and mushrooms. Sounds like the makings of an evening.

ACES FULL's picture

I feel like a mushroom. Everyone feeds me shit and keeps me in the dark.

Seek_Truth's picture

Looks good!

I've never farmed on a large scale- just 5-6 acres with enough room for all the veggies we need (so much that I have quite often given away veggies at church, and to neighbors), and also orchards, berries, and vineyards.

That said, I've never raised animals other than pets- but where I live, in South Central PA, there is an abundance of farmer's markets, butcher shops, and family owned grocers.

It just takes planning and familiarity with the area and the people to get grass fed, hormone and antibiotic free beef, pork and chicken.

Supplement that with fishing, hunting and trapping and it's just not an issue for me and mine.

 

Bubba Rum Das's picture

Wow, those cheeses look really nice...If we lived in your neighborhood, we would definately be customers.

hedgeless_horseman's picture

 

Sorry.

That is illegal.

Corporate farming will not be undersold.

They bribe make contributions to lawmakers to make certain of it.

Huckleberry Pie's picture

Grocers are bitching now with full shelves? Wait till hyperinflation, and the EBT class (hint hint)  rob, loot and burn the stores down.

Seek_Truth's picture

Coming to a City near you.

Then,

 a Town near you.

Then,

You and your Family and Neighbors.

PS- Be prepared.

 

Yen Cross's picture

  I didn't realize you had a summer home in Peurto Rico. ;-)

froze25's picture

Turn the milk into cheese, much longer self life, corn and wheat into booze, much longer self life. Beef is still retardedly expensive.