This is nuts! That’s right, a starbucks coffee will soon be $10 and I will tell you why. The world goes through cycles and that is what we are seeing right now. Yes, a cycle. It was bound to happen and Hurricane Katrina was the straw that broke the camels back. Let me explain a little. If we take a quick look at history, let's say 50 years, we can see two major augmentations in the cost of consumer goods on our planet. These augmentations caused the general costs of living to take a drastic jump and I think we are seeing such a cycle repeat itself again. People around the country are blaming everything on the cost of fuel, but we have to take a closer look at what is happening to see where we should be heading. Unlike popular belief, this is not the time to be trying to boycott gas. We rely way too much on fossil fuel to make such a demonstration effective. The head honcho's who have billion dollars put away and live in hotel size houses are laughing their butts off watching consumers try to make a difference. They know that soon we will be running back to them to fill up our trucks and cars and lawn mowers and whatever else we have that relies on fuel. There are not enough alternatives to fossil fuel and there is not enough money invested in alternative fuel sources for us to make a fuel boycott effective. Hydrogen powered vehicles that have been proven safe are a long way from being mass produced. Hybrid vehicle are a good start but still rely on fossil fuels. Solar power is not yet at a point to make it a reliable alternative. And there are many people on this planet that are attempting to create a solution, but that is not what I want to talk about today.
Returning to the idea that we are going through another cycle, I present to you theses examples. In the late 1950's and throughout the 1960's, we saw a steady climb in retail prices for consumer goods. Everything from beer, pop, bread, eggs and fuel took a jump in price. Beer went from 10 cents a bottle to 25 cents a bottle and pop went from a nickel to a dime. Fuel also doubles in prices from a quarter a gallon to a dollar a gallon. Prices all across the board went up, doubling cost of living for the average North American household. It stayed there for about twenty years, slowly inflating. I think we cannot look at the 50 years before that with the same perspective because the great wars had their own effects on cost of living.
In the 1980's, we again saw this cycle hit us hard with extreme inflation of cost of living. Many were afraid that costs would not stop rising. Interest rates jumped into the 20% doubling and tripling mortgage costs. Consumer goods again doubled some even tripling in price over a couple years. I remember buying a bottle of cream soda for a quarter and a couple years later the same bottle being 75 cents, then a dollar by 1990. Gasoline prices took a jump from 25 cents a litre to 50 cents a litre. Throughout the grocery stores and appliance stores, the trickle down effect of primary costs could be felt by all.
Now we jump to present day. About 20 years...hmmm, 20 years between cycles. Now, hurricane Katrina is, what I think, the straw that broke the camels back. The trickle down effect of this catastrophic event will surely be seen over the next couple of years. Now the reason that this hurricane is so devastating, it is because of the importance the New Orleans has on our world markets, especially related to it's Port. NEW ORLEANS HAS THE THIRD (3RD) MOST IMPORTANT SEA PORT IN THE WORLD. Everything from coffee to grains and soybeans are affected dearly by this disruption in port activity. We cannot ignore the one that has sparked the most interest to date, Gasoline and other fuel prices. We have already witnessed great hikes and if the cycle follows suit to the 1960's and 1980's doubling, the cost of gasoline will not settle lower than $1.50 a litre (that's about $4 USD a gallon) Already 3 major transport vessels have had to cancel an order to pickup soybean. For those unfamiliar, soybeans are not only used for soymilk, but one of its major uses is its oil content. Soybean is an alternative to canola oil. So we can maybe expect the price of cooking oils to go up in price. Most of South America's coffee production is routed through New Orleans ports. So we can expect a hike in coffee bean prices. Leading me to the deduction that soon it will cost $10 or more for a cup of jo at the local starbucks!!!
If we take a look at some other effects that can be seen is the stock prices of Home Depot. New Orleans is in shambles and I can't imagine people not wanting to go back and try to live their again, so we can expect billions in dollars in rebuilding costs. We can just imaging who will see the trickle down effects next as I think everyone will soon be bringing their prices up.
But, I want to discuss some people who might not. Who in the past have unfortunately not seen the trickle down effect of higher prices? Farmers, more specifically grain farmers. Did you know that the price to buy grain is presently lower than it was 25 years ago, even though cost of production has followed the rest of industry and tripled or doubled? And with the high fuel costs, Farmers are about to be hit hard again. They are the only people in industry that are unable to recover fuel costs. They are unable to charge more to recover that cost. Many farmers rely on government subsidies and risk-share programs to ensure their survival. Other farmers have had to dig into old money to survive, running in the red for the last ten years. While companies that produce grain based goods like bread or flower have been able to increase their costs and see their profit correlate with the cost of production, Farmers have not seen this. Small farmers that have been working family farms for over a hundred years are being forced into bankruptcy and completely losing their quality of life (which sometimes isn't much to start with) These people that help feed the world just want to be able to have a good life for their families and re unable to. Look at it this way. A Farmer grows 160 acres of wheat. His cost to produce this wheat is about 175 per acre (and that is just fuel, machinery, and crop inputs) let’s say this farmer produces 45 bushels per acre in wheat (an average yield.) The average price of high quality wheat right now is $4 per bushel. This means that the farmer will make (if he has a good quality crop and doesn’t run into too much trouble) about $180 per acre. That gives him about $5 dollars an acre to invest either into his mortgage payment, food to feed his family, a vehicle to drive him from his farm to town to pay his accountant to do his taxes, etc...So, this farmer will make about $800 per 160 acre to try and make his family survive. Sure, if you look at farming from a big aspect, some average farmers do gross close to $200,000, but when their cost to produce is around $180,000 to $190,000, it makes it very difficult to survive.
Some of you may not agree with my perspective, and that's ok. Let me know what you think.
SkEEtEr
