Yes, Dairy and Meat Prices Are Increasing

The New York Post headline announced that prices were rising for many food staple items, particularly meat, fruit, milk and butter.

This was the same message that I got when I recently went shopping with my better half.  We had come up the refrigerated dairy aisle and stopped alongside about four other people as everyone gazed at the rows of shredded and block cheese products that were all on sale at prices that, roughly two years ago, were full prices.  One person stood with her hand on her chin and commented to her neighbor about the prices and my better half likewise asked, what’s going on with cheese?  My response was that it was simply due to the mega-drought that’s presently parching the western US.

Prices are going up for all of these items and as much as I truly dislike the Federal Reserve, it’s actually a supply and demand issue instead of a monetary policy issue.  The reality is that the western United States – and especially California – is now locked into a horrendous drought, which some scientists state is the type that occurs only about once in a hundred years or so.  Satellite images of the San Joaquin valley show the tremendous difference to that valley in the course of only year; what’s especially startling in the January year-over-year photos is the loss of the typical snowpack.  It’s the melting of the snowpack that helps provide water to replenish reservoirs and land and with that diminished, the effect is impressive.  It was this kind of megadrought that was thought to be responsible for the gradual destruction of the Anasazi culture that flourished in the pre-European southwestern United States, leaving behind the famous cliff dwellings at Chaco Canyon in present-day Arizona.  This isn’t meant to be breathlessly apocalytic, but a drought of this magnitude is going to leave a considerable hurting on how we live in those conditions and in those areas.

The fact is, California and the western US provide a significant percentage of our national food supply.  The state’s top five agricultural products are dairy, greenhouse/nursery products, grapes, walnuts and beef livestock and the effect of the drought has already been dramatic;  In late 2013, agricultural conglomerate Cargill announced that it was closing yet another beef feedlot in Texas as the size of the aggregate US cattle herd dropped to levels unseen since the early 1950s.  The principal cause of the herd decline is due to drought-related high feed costs for ranchers, who correspondingly culled their herds to bring their margins back into line.  Considering that the population of the US has more than doubled from 131 million to 308 million from 1950 to 2010, it’s a given that a significant drop in supply would affect prices.  When the USDA reports that the typical American consumes 7 more pounds of beef today than in the 1950s, then clearly the demand is up as well and with that, prices.  California provides the same for dairy as it is the number one state for production of milk and dairy products, accounting for about 20% of domestic US milk production.  So it’s a given there as well that any impact upon the supply is going to have a corresponding effect upon prices, especially when Americans are likewise prolific milk drinkers.  But the other part of the demand issue is that we’re now exporting far more dairy production to other countries, particularly China, than in the past.  New Zealand leads the world in dairy exports but is likewise suffering from drought-related supply issues so that their customers are looking elsewhere and that elsewhere is the US.  China’s appetite for milk has led to a 39% rise in US dairy exports in the first quarter of 2014 alone and while it’s nominally only about $700 million – how jaded are we when a million of anything doesn’t seem like much? – that’s still a lot of dairy that isn’t making it to our own shelves.

So yes, prices are rising and as the drought continues and we use our own food supplies for export purposes, they’re going to continue doing so.  It’s a simple math problem.  Understand that inflation is not a single variable issue but a bubbling stew of multiple ingredients – supply and demand, monetary supply and policy, technological change and political policy amongst others.  But when you examine the causes, you have the ability to look at larger issues and the mundane price of those blocks of cheese on that refrigerated aisle shelf take on new meaning.  A New Yorker commented to the Post reporter that while prices have gone up, her income has not, as it hasn’t for hundreds of millions of other Americans.  If we’re going to permit an unfettered laissez-faire capitalism by producers, then we have to look to the income side of the house and see why our incomes haven’t risen accordingly.  What’s the cause and what can and must be done to bolster that income to sustain a diminishing middle class?  Indeed, should we begin adopting policies that protect the food supply for our own citizenry instead of using food as an export entry in the trade balance ledger?  Much as I don’t want anyone anywhere to starve, China’s demand for milk is partially predicated upon their own citizens’ distrust of their domestic production due to pollution and safety issues, and that is their problem.  Not ours.

Prices for those items will continue to rise until such time as either demand decreases or supply increases.  Until then, we’ll certainly have to make the necessary micro-level changes such as buying and freezing extra blocks of cheese on sale, shifting to other protein sources to replace beef, and becoming far more purposeful in our meal-planning and shopping.  But we’ll have to also begin expecting that our leadership – political and business – review and change the policies that benefit the corporations to the detriment of the individual.  We can’t repeal the laws of supply and demand…they are as real as gravity.  But we can and should expect that leadership won’t engage in monetary and political policies that create conditions that are only exacerbated when supply and demand go south.

Conversations with the Kids:  Corporate versus Local

One of the great issues of our day – and one that casts a shadow over our youngsters as they move forward – is that of the power of the corporation versus the power of the individual.  We’re in a time that’s most akin to the Gilded Age of the late 1800s as the uber-wealthy, the corporations and the financial sector hold outsized control of the levers of power in the nation.  The situation has become so outlandish that the Supreme Court has ruled that capping the amount of political contributions is a violation of the right of free speech, including that of corporations which are at their heart, wholly fictitious legal entities created solely to earn a profit for a small group of initial investors.  Until there is significant enough unrest to force change, and that was at the heart of the labor conflicts of the late 19th century, this is the world into which my children will enter.  So what can and should I do as a father and parent to prepare them for entry into that world?

Short of singing union songs about beating up the scabs in lieu of grace at the dinner table, there are two important things, even if they seem insignificantly small in the moment.  The first is to understand that the kids are watching you and taking their cues from you in how they deal with the daily issues of life.  Many parents wonder whether the kids are even paying attention as immersed as they are in the electronic ether but I believe that they are paying attention to both your actions and inactions.  If I’m going to preach the inequities caused by the rise of the corporations at the expense of the individual, then I’m going to have to be far more purposeful in my own spending and that goes to where I shop.  The persistent drumbeat of consumerism – buy more, buy cheap – over decades of advertising does create real cognitive dissonance for someone who’s shopping.  The simple reality is that purchasing an American made consumer product is probably going to cost more simply because the labor costs of an adult labor is greater than that of Chinese peasants or Indonesian children.  The upshot is that there’s going to be less money around for the stupid crap that so many Americans purchase in the hopes of filling whatever emptiness exists in their lives. 

The second thing is to constantly look for situations in which you can have conversation with the kids, the proverbial teaching moments.  Such instances do crop up and two did so within the last week.  In the first case, Eldest called me from college with the news that her car had a flat tire.  No big deal since we purchased a AAA membership for her when she took the car to school and she’d already contacted them to arrange service.  She also arranged to have it towed to a tire dealer for a new tire, which was fine thus far.  But we parted ways when she then told the tire dealer – a Firestone dealer – to have the mechanic look at other issues under her hood, which she couldn’t specify apart from a perceived shimmy and grinding noise.  The bill was coming back to me and my immediate response was to tell her to have the dealer contact me directly.  When they did so, they had already done some looking under the hood and had a list of things that could be the issue and were of possible concern.  Eldest was concerned about the driveability of the car while I was more concerned about a vehicle which, in my opinion, had issued the dealer a fishing license.  If the tire hadn’t gone flat, the car wouldn’t have been there in the first place and with so little specificity, I was greatly concerned that the repairs would be unnecessary and financially excessive.  In the end, I authorized only the purchase of two new mid-range tires and asked for a list of what they considered possible causes and then directed Eldest to take the car to a reputable local mechanic, one who had serviced the cars of other family in that area for decades.  Eldest had the list of suggested repairs in hand when she went to the local mechanic and after a test drive, he solved her issues with a $50 repair that wasn’t even on the dealer’s list.  The lesson to Eldest was that the corporate dealers had no loyalty to any individual and were usually only concerned with their own bottom line instead of yours.  A good local mechanic however, was intimately aware of the power of referral and good service and was generally in the mindset that customers were also neighbors as well.

The second moment occurred with Youngest, an aspiring drummer.  His first drum set is a decent beater set from a thrift store, a reputable brand that has simply seen better days despite it’s continued usefulness.  It was good for the first year of practice in which the user typically beats instead of plays the drums but the boy is moving beyond that.  He asked for a floor Tom to supplement the existing pieces and that request led to a visit to a local Guitar Center, a corporate music store that specializes in rock n’ roll stuff such as guitars, drums, keyboards and amps.  He understood that this was simply an educational visit on top of a small purchase to help repair a high-hat cymbal and listened as I spoke with the employee in the drum section.  The employee was clear that while they might be able to get ahold a floor Tom on special order, the usual route to purchasing drums was to buy an entire set in order to get a significant price break and if we wanted, there were any number of good mid-line sets that he could show us.  I let Youngest look but demurred on anything apart from the needed piece and the boy left the store with stars in his eyes for a set that cost in excess of $800.  But while on the other side of town, I passed a locally owned drum store that services multiple counties and decided to stop in to learn more about floor Toms and buying by the piece instead of the set.  The owner is a younger guy who’s decided to be the go-to guy for the region and is far more well stocked for all manner of drums than the corporate Guitar Center.  He took me to a room in which there were a significant number of used Toms available, traded in by previous drummers.  We spoke for a good quarter hour and the gist of the conversation was that no two drummers were alike and in fact, many preferred to buy by the piece and assemble their own custom set.  He challenged the statement that you should only buy by the set and confirmed by belief that there was greater profit – and salesman commission – in selling by the set; it also made it easier for a staff that wouldn’t be as familiar with the merchandise as someone who did this full-time.  I have since shared this with Youngest, including the fact that there’s greater commission for a salesman who can sell an entire set at one time, even if it is pricier than the customer might be able or willing to afford.  The upshot for each child has been a lesson in practical economics, that you’re liable to get better and more customized service from a local merchant who has skin in the community’s game.

As the middle class is winnowed away, there will be increasing social and political friction until there’s a breaking point.  I don’t profess to know what the final result will be, except for the fact that the resources and opportunities available to our adult children will be less than they are today let alone what they were when we were young.  My job until that time is to teach the kids and help them find a way to safely navigate this economy with some integrity.  If I can also set the stage for a future more vibrant and diversified local economy that’s able to withstand the corporations, then that’s the added bonus.  I will continue to search for the teachable moments as they arise and in this corporate version of America, those moments will repeatedly present themselves.

China (Kind of) Overtakes the US.  But Maybe Not For Long.  Or Maybe.

I believe in serendipity, the notion that things fall into place unexpectedly; the definition is meant with pleasant connotations but I’ll take it however I find it.  Shortly after I posted the October 2014 PracticalDad Price Index results, I came across two separate and seemingly unrelated news articles.

The first article pertained to the announcement that China has finally overtaken the US as the world’s largest economy.  It was surprising on the face of it since other sources were all pegging that event to finally occur in 8 to 10 years.  But further reading showed that this was a different metric, called purchasing power parity.  What this means is that the GDP for each nation is adjusted by an international body for the purchasing power of its currency. Since the given is that the price of most items in the US are comparatively more expensive than in China – from the average price of housing to a Big Mac – then this pricing power should be factored into the national GDP.  While it sounds a bit far-fetched, the notion that nations such as Italy and the UK are now calculating the contribution of such illegal activites as hookers and blow to their national GDP, then it really isn’t that much of a stretch at all.  This was a new twist that was implemented just within the past several years and is a different result from the traditional GDP metric which, while still showing the US ahead of China. showed a trend that indicated China was on track to overtake the US by the early 2020s.  Naturally, there was some conservative talk radio blowback, condemning the Obama Administration and Democratic Congressional policies for permitting this unconscionable event to occur.  And this is what sets me to wondering after reflecting on the second article.

The second article is from the NY Post, which alleged in 2013 that the government cooked the books on the unemployment rate prior to the 2012 presidential election.  This most recent column alleges that a Denver field office whistleblower has come forward with information that the unemployment numbers are again being cooked.  What caught my eye in the article was a comment that it also extended to inflation data.  In fairness, the original allegation regarding the pre-election unemployment numbers was investigated by the Commerce Department’s OIG with the resultant finding that there was no substantiation to the claim; but the new allegation does make me wonder…especially in light of the ongoing findings about the weaponization of the IRS against conservative groups.  It’s difficult to know who to believe in this world of he said, she said journalism, a newspaper with a definitive political leaning or an agency of an increasingly distrusted government.  It might be a purely academic spitting contest save for one fact: the inflation rates are now key to the purchasing power parity metric and if anything ever shifted from purely interesting to important, it would be this particular issue.  Since the median American family income is still multiple times greater than the median Chinese family income, the ability to keep the inflation rate low in comparison to the Chinese rate could conceivably have some impact on the GDP competition.

I have an elderly friend of Irish descent and his repeated mantra has been never let the facts get in the way of a good story and it’s certainly possible that we’re now in this operative mode.  God knows that there are plenty of other issues that have been, and are, gamed.  I won’t sit here and say the numbers are or aren’t gamed since I simply have no way of knowing.  But the question is planted and I’ll keep plugging each month with the PracticalDad Price Index.  In the long-term, the question of potentially gamed inflation data is a short-term sideshow because the real issue is the passing of the torch of economic dominance from one nation to another.  And the truth is that for all of its own problems, China is moving along in such a way as to truly overtake us in a decade or less.  Regardless of the question about data quality.

PracticalDad Price Index – October 2014

The following brief article was attached in a quick note from my better half, who commented Wonder how this comports with your pricing.  The quick piece was a snarky bit from a writer who noted that we should all feel wealthier for the low food inflation as noted by the government’s CPI.  As I was several days away from doing the pricing, I thought that it would be worthwhile to compare how the PracticalDad Price Index does actually compare with the monthly results of the CPI?  More importantly, what might account for any differences?

First things first, however.  The Total Index for the 47 item marketbasket rose slightly from September’s 111.07 to October’s 111.11 (November 2010 = 100.00); the Food-Only Index covering the 37 items within the basket dropped by .28 from September’s 114.73 to October’s 114.45 (November 2010 = 100.00).  While butter and hot dogs continued to demonstrate the effect of inflation by rising 11.4 and 6% respectively, these were offset by significant declines in white bread, sugar and rice (15.3, 8.1 and 6.4% respectively).  In the case of a 20 ounce loaf of store brand white bread, each of the three grocery stores has now dropped the standard price to $1 or less, whereas the prices for the loaf had been on the order of $1.25 or more in past months.  As usually occurs, these declines occurred in different months so that the price impact is muted over a longer period of time.  What this does show however, is that the grocers are responding to the decreasing buying power of the typical consumer by finding ways to offer a lower priced basic good; I expect that this is because there is use of lower quality flour or some other ingredient than before (stealth deflation). 

So how does the CPI figure issued by the US Government differ from what I’m capturing with the PracticalDad Price Index?  Let’s examine the six months of results, ending with the most recent comparable month of August 2014.  Understand that because the CPI is calculated for multiple geographic areas, there’s roughly a two month window difference between the most recent PracticalDad and CPI results.  For comparison purposes, I’m looking at the 37 foodstuff items of the PracticalDad basket and comparing that sub-index result with the Food-at-home line from the CPI monthly report; the full Food Index from the BLS CPI report also includes the change in prices for food purchased in restaurants so I’m reviewing against the sub-category for similarity.  In the table below, I’m showing the monthly Food-Only Index from the PracticalDad site as well as the monthly change from the previous month (M-o-M) for both the PracticalDad and CPI Indices. 


6 Month Comparison of PracticalDad Food-Only Index and CPI Change
Month/Yr PD Index M-o-M Change M-o-M CPI
2/14 112.46 .07 .5
3/14 112.06 (.4) .5
4/14 113.59 1.53 .4
5/14 111.54 (2.05) .7
6/14 112.65 1.11 0
7/14 113.22 .57 .4
8/14 113.71 .49 .2


What’s most noticeable about the Month-over-Month results between the two is that the PracticalDad Index has a much greater variability from one month to the next than the CPI.  This makes sense given that the PracticalDad Index is calculated at only three stores in a single geographic vicinity while the CPI Food-at-home is priced nationally from multiple geographically disparate markets across the country.  Likewise, the CPI basket is much larger than the 37 foodstuff items in the PracticalDad basket so that there’s a larger number of sampled items; the larger the sample, the less the variability.  For a look at the foodstuffs sampled by the Bureau of Labor Statistics, see here, especially down at page 8.  Even with this roster from the BLS, it doesn’t list the individual items sampled each month.  When I began to sample prices in November 2010, it was a purposeful decision to keep the basket manageable, using the most common items that a family would purchase each month, based upon my own experience as shopper, cook and chief bottle-washer through the years.

The monthly pricing for the PracticalDad Index is done solely by me and even with four years of familiarity, it’s not uncommon to have to return to a store more than once in order to double-check a particular item.  This is particularly the case when there’s an incident of stealth inflation and a package size changes.  What sometimes makes it difficult is that the change is insidious so that one foodstuff package changes across the stores over a period of months.  That said however, the PracticalDad Index has captured instances of stealth inflation in the following products: sugar, orange juice, hot dogs, women’s pads, diapers, store brand tomato sauce, cereal, and coffee.  In the case of the BLS, the pricing is done by “economic assistants” hired by the individual metropolitan field offices of the BLS; these individuals are trained in what to look for and then set loose with the results forwarded to the DC office of BLS.  The data is then inspected by analysts and any questions are returned to the field if there are issues.  The analysts do adjust for any qualitative and quantitative changes, but these changes are never reported in the actual report.  So even if the changes are noted in the calculations, they are never individually reported in the monthly results.  While I actually believe that BLS process is fundamentally sound, the presence of so many different assistants with so many different products to price can lead to some missed prices. 

The fact that the pricing in the PracticalDad Index is limited to a small area means that there can be a greater examination of the inflation versus deflation scenario as well.  The index has captured price increases that are attributable to monetary policy, most especially in the pricing of commodity products when hot money flows into, and then out of, that product.  Coffee, Canola oil and sugar are prime examples as their prices exploded several years ago with the hot money flows into the commodity markets; these prices have since dropped from previous highs, even accounting for stealth inflation packaging changes in coffee and sugar.  I’m also able to see the deflationary side as individual stores are having to adjust for the increasing lack of consumer buying power.  One store in particular has had to simply cut prices of some basic foodstuffs since their customer base doesn’t have the funding.  The practice has shifted to the other stores in multiple cases as well.  Ultimately, it’s this micro-scale that helps explain some of the distrust of the CPI figures by the general public.  No one person shops in a wide variety of stores and their viewpoint is limited.  But not all stores price in the same way and have the same bargaining power with their suppliers; a regional grocery chain simply can’t bargain with suppliers as well as a national or international chain such as Royal Ahold.  Likewise, different stores serve different customer levels and a customer at Trader Joes won’t feel the same pain as one in rural Indiana.  When a store raises prices or passes along steath inflationary packaging, you might see it in your store but on a macro-level, it might not be fully processed through the entire system and hence not fully reflected in the CPI.

Here’s my own perspective on the issue of CPI reliability.  I have come to believe that the mechanism is fundamentally sound, even if the presence of so many “fingers in the pot” can make pricing problematic at times.  But if there’s issue to be taken, it’s to be taken at the upper levels of the government, who split out the more critical sector of food from the CPI component when they determine what increases to put through for benefit recipients.

Honesty at the College Visit

This weekend saw yet another college visit for Middle, who is now in his senior year of high school.  It occurred at a major urban east coast university and naturally, the place was festooned for the thousands of visiting prospects and parents, who were respectively excited and terrified.  Before the breakout sessions for the Admissions/Aid and then the various individual academic schools within the university structure, there was the obligatory reach-‘n-grab for all manner of flyers, pens and cheap lanyards as the herd milled past the tables set up in the arena concourse.  For all of the obligatory rah-rah however, there was a session of clarity and honesty in the early afternoon and it was eye-opening for the handful who were in attendance.

Middle is an arts kid – creative and talented, someone who appreciates the poetry of E.E. Cummings more than the need to subtract – and in his element, he’s a wonder to behold.  All of the paternal gush now aside, we joined dozens of students and parents for the Theatre Department’s information session.  It was hosted by the Theatre Department’s Assistant Chair as well as the graduate theatre program director, each with years of experience running this nationally recognized program and it occurred in the front rows before a stage undergoing transformation to the mythical Scottish village of Brigadoon.  The department chair spoke about the program and it’s structure, as well as the various concentrations and where the graduates were getting work.  He then however, commented that if the students were hoping to come here and then simply make it into the big-time, they were suffering from a notion that was preposterous; they would work diligently and hard to learn a craft that might earn them a weekly wage of $150 to start.  As he discussed the capabilities of the various adjunct faculty, he told of a graduate who had been on Broadway but was now back and teaching as her mother was helping care for the graduate’s child since the typical Broadway salary didn’t allow for the burden of childcare expenses.  I glanced at Middle, who was silently digesting all of the information that was more telling of reality than he’d get from the glossy brochures that inundate the mailbox.  The two of them also acknowledged that they were glad that it was far more affordable for the in-state kids and they didn’t blink when a mother later asked about the state residency requirements; this woman was a heavily-accented immigrant who would be willing to move to make this work for her child, even if it meant that her child would have to wait a year for the opportunity.

When it was over, we joined a group who were waiting to make personal comments or ask questions.  I thanked the gentleman for his candor and he remarked that he very much understood the issue of tuition.  When he himself was in high school, he had the opportunity to attend a college for free and his own father decreed you will go here.  He then touched his index finger to his thumb to make a small circle that he placed before his eye, and commented that it made a huge difference for him, allowing him to take advantage of opportunities that paid nothing yet provided real dividends for his career.  Middle stood nearby listening, taking all of this in and it was invaluable since it wasn’t coming from the ‘rents.

The old reality of college – the best seven years of my life, as Bluto Blutarsky once commented – is dead.  I don’t know where Middle will ultimately wind up or what he’ll do and I know that the decision will be hashed out in the coming months.  But there were three lessons that I believe he took with him from the sessions.  The first is that beneath the glossy exteriors and play to the emotions, this is a difficult first lesson in finding the balance between the dreams and the adult realities of the present-day world.  The second lesson is probably more important, and that is that this is a decision that will be made with the parents; indeed, the folks might just be more far-sighted than he realizes as he comes to terms with the reality that you can’t have it all, despite what it proclaimed in advertising.  The third lesson is that it’s not just his own Mom and Dad who are asking hard questions, ones that he simply doesn’t yet grasp as a teenager.

This coming weekend will see yet another college visit and this time, we’ll go as a family and bring Youngest along. He’ll be bored at moments and that’s fine, he’s old and disciplined enough to suffer well for the short duration.  But my hope is that even years away from this decision, he’ll take enough in to see the process so that he’s not so swayed by the marketing that’s printed to sway the kids.  Because last week, he – now in seventh grade – looked at a brochure sitting on the kitchen island and stated man, I wanna go here ’cause everyone looks so friendly.  Yes, the boy’s coming along.