Posted originally on the conservative tree house on January 27, 2022 | sundance | 224 Comments

Last year, when CTH discussed the original Kraft-Heinz wholesale notification for January 2022, we warned it was only the first round.  The reason for waves of price increases is specifically, because each of the processed food categories is impacted differently depending on the amount of processing involved.  Each category is different.

This understanding is why we warned everyone in October of last year to make as much preparation as possible for waves of food inflation.  The original notification for contracted terms in 30, 60 and 90 days was +20%.  Meaning this month, on those group and sectors, prices to retailers went up by 20%, and you are seeing that in the supermarket now.

For the next wave, Kraft-Heinz is telling wholesalers the fulfillment shipments arriving in March will be up to +30% on the next categories.  Oscar Mayer proteins will be the biggest increase at the top end (+30%), Maxwell House coffee on the lower end (+5-10%) and the juice and drink category around +20%.  [A $5 beverage pack will cost $6 in a few short weeks.]

The processing sector is still dealing with cumulative cost increases.  The fulfillment terms are still catching up with the increased costs.  These announcements are ON TOP OF the current price increases we are feeling.  We are entering hyper-inflation.

If you look at the notification timing from Kraft foods, January 24th, you will see the categories we predicted to come next are the exact categories being outlined in this wave.

(VIA ABC) […] The increases range from 6.6% on 12oz Velveeta Fresh Packs to 30% on a three-pack of Oscar Mayer turkey bacon. Most cold cuts and beef hot dogs will go up around 10% and coffee around 5%. Some Kool-Aid and Capri Sun drink packs will increase by about 20%.

“As we enter 2022, inflation continues to dramatically impact the economy,” Kraft Heinz said in a letter dated January 24 to at least one of its wholesale customers that was viewed by CNN Business. The wholesaler shared the letter on the condition of anonymity to protect the company’s relationship with its suppliers.

[…] If retailers decide to pass on any of the increased costs, these items will be more expensive for shoppers in stores. US consumer prices rose 7% annually in December, the steepest climb in 39 years.  Kraft Heinz has already raised prices on some of these same foods in recent months.

In October, the company said it would increase prices on Oscar Mayer cold cuts and hot dogs. In November, it said prices on Oscar Mayer beef, lean beef and Angus hot dogs, cheese dogs and other products would go up by around 9%.

But since those November hikes, Kraft Heinz said in the letter, it has faced “constrained supply, logistic bottlenecks and weather-driven crop losses.” The company’s costs have increased, including on raw ingredients and freight, leading it to bump prices yet again. (read more)

These same major manufacturers are the same companies that make the “off label” or “private label” products that are sold under various retail brand names.   After the big guns raise their prices, the private label price increases will come in the next wave, because they are made by the same people using the same raw materials and the same processes.

Keep in mind the points we noted in December:

(1) The outlined price increases noted are against current price terms and contracts.  Meaning, these are price increases from right now to the next fulfillment.  These are not inflation price increases which are compared to a year ago.  These are increases from the current price right now.

(2) The price increases are not the final price increase.  This is the price of a contract today from the field to the distribution center.  The retailer also has additional price increases (transportation, energy, labor, etc) which they need to add to the wholesale price before you see the final price at retail (grocery store).

The final field to fork price is not yet known but will be higher than noted above.  We are only seeing the notifications from field through processing and into warehousing and distribution.

Additionally, the more an item needs to be processed, the higher the price increase will be.  Food items that require multiple raw materials, ingredients and bases for processing (ex. condiments), when combined with increased packaging costs (oil, energy), will be much higher than foods with less processing, handling and packaging.

This has always been the nature of this specific supply chain.

Example: Many products, food, drinks and even cleaning products, contain citrus bases, additives, flavorings and distillation.  Those products will be much higher in price due to the price increases in raw materials, combined with higher energy and petroleum costs.  It is an issue of cumulative price increases in the production of the product from beginning to end.

CTH has recommended preparing for these massive increases in 2022 prices, by thinking about the base products you use to make meals at home and holding an extra supply of shelf stable products, so you won’t hit the grocery store and face those massive increases.

A working class family, who typically spends $200 to $300 a week on groceries, is already getting hammered at the gas pumps and grocery store.  Another $50 to $100 bucks on top of the grocery bill each week can be very stressful.

Even if you don’t have kids at home, perhaps your adult children have kids.  Your proactive position can help them, perhaps your neighbors and others, at times of greatest need.   Pride can often stop people from asking for help, so look behind the eyes of those who hesitate to accept it.

The price increases will not only hit retail grocers hard, but they will also hit restaurant and industrial food supply companies like Sysco.  Food away from home will increase in price, because the food suppliers are all experiencing the same price increases.

Food, fuel and energy price increases will continue to be the most impactful problem into 2022.   The problem will compound, because buying offices of the large multinational corporations enter this phase of consumer and commodity squeeze by looking to leverage their size for competitive advantage.

Large multinationals will make advance order purchases today at higher prices.  Advanced purchasing becomes a competitive advantage, and they leverage that in the supply chain. The downstream consequence is a material shortage, because the commodity is wiped out, which drives up the price and then those same multinationals execute distribution to a higher profit.

This gaming of inventory for profit, or inventory evaluation/capitalization, is a less discussed outcome of rapid inflation.  Multinationals have deep pockets, and they can maximize profits by executing advanced purchase orders to lock in commodity prices.  Unfortunately, the little guys have a tough time competing against them when the inventories dry up.

While the examples above all relate to fast turn consumable goods, the same purchasing leverage is used by large corporations on durable goods.  Retailers, large and small, then begin competing to secure inventories while supplies are limited; this too drives up prices.  It’s a hot mess of competition that squeezes the consumer even harder.

The only thing that stops this process is the inevitable collapse in demand, but that outcome sucks also.   In the interim, I hope and pray to have provided y’all with enough advanced notification so that all of us can ride this inflation storm out just a teensy bit better than if we didn’t know it was coming.

Posted originally on the conservative tree house on January 27, 2022 | sundance | 183 Comments

We have been tracking the issue of U.S. port congestion, supply chain crises and the White House supply chain initiatives since they first surfaced last fall.  We finally have full data to review, and what we see is very disturbing.  Not only was the White House supply chain effort a fraud, but they also manipulated the port system to give a false impression of the U.S. economy.

Let’s start with the latest issue.

For several weeks, we have been trying to figure out why the Port of Los Angeles (POLA), our nation’s busiest and most valuable port, had delayed their reporting for December.

Normally they update their container statistics and port efficiency/productivity results between the 10th and 15th of the month.  However, this month the data was delayed by several weeks.

When we finally grew frustrated and asked the POLA about this ridiculous delay, they responded January 25th, saying: “Good morning. Data from one vessel has delayed final numbers. We plan on releasing numbers today or tomorrow.”

The POLA justification and timing seemed odd, and their explanation seemed fishy.  One container ship manages to delay the entire POLA result?  However, this morning after checking and seeing still no result we realized what was going on.

The Bureau of Economic Analysis released the U.S. 4th Quarter GDP result (link).  The value of imported goods is a deduction to the U.S. GDP.  If the biggest port in the U.S. holds back their import cargo data, the resulting information cannot be deducted from the GDP.  Missing data gives an artificial outlook for the GDP.  Put another way, the 4th quarter GDP is inflated by the missing deduction.

From the position of the Biden administration, there is a perverse economic motive to keep all those import cargo ships from arriving.

Would the Port of Los Angeles intentionally hold back data in order to help the White House give a false and more optimistic impression of the U.S. economy?  At first blush it might seem a stretch, but then – as if on cue – a few hours after the BEA made the public release, suddenly the Port of Los Angeles released their December data.  In politics timing is never coincidental.

Yes, it is entirely possible, I would actually say likely, the BEA fourth quarter outlook is skewed by a bunch of factors, one of them being the missing December import data from Los Angeles.

This suspicion increases when we realize the ideological outlook behind the people running the Port of Los Angeles, the politics of California and the influence of White House supply chain taskforce member John Porcari as Ports Envoy.

Additionally, right about the time POLA would normally generate their data in January, Transportation Secretary Pete Buttigieg traveled to the Port of Los Angeles for a supply chain initiative briefing and press conference.

Given the political issues and importance at stake for Joe Biden – yes, it is entirely likely the White House influenced a December port reporting delay for two reasons.  First, to help the illusion of better economic picture; and second, because the White House port supply chain initiative was a fraud.

The second point takes us back to the reason why we were tracking this issue to begin with.

In October and November, the Biden administration was touting its port supply chain initiative as a fix to the backlog at the ports. {October Initiative Here} and {November Update Here}.  Calling it, “a series of public and private commitments to move more goods faster, and strengthen the resiliency of our supply chains, by moving towards 24/7 operations at the Ports of Los Angeles and Long Beach.”

Despite these claims from the White House, the ports never moved forward to 24/7 operations.  Factually, the operational productivity at both the Port of Los Angeles and the Port of Long Beach dropped.

The ports handled less cargo, off-loaded less cargo and did absolutely nothing to remove the port congestion that was created by the local and state environmental ordinances.

On January 19th, the Port of Long Beach (POLB) released its data {LINK}.  What the statistics show, is that less cargo is being handled now than it was when the 24/7 port operation announcement was made:

As noted earlier today, the Port of Los Angeles finally released their data {LINK} and the same is true (see below).

The White House claimed hours of operation expanded to increase capacity, yet fewer containers are being handled at both ports.

The outcomes speak for themselves.  Both the Port of Los Angeles and Port of Long Beach handled less cargo and fewer containers in the two months after the “new expanded operations” were announced, than in October when the expanded supply chain operations were announced.  There is no improvement at all.  Less cargo is being handled.

Perhaps the administration did not expect anyone to check when they claimed on November 29th:

“The Ports of Los Angeles and Long Beach—which handle 40 percent of the country’s containerized imports—continue to show improvement in moving containers out of the docks and into warehouses.”  [White House link]

Despite what the White House Supply Chain Disruption Taskforce is claiming, the actual records from the ports do not concur.  Someone is clearly lying, and/or not expecting anyone to check.  Now, here’s where it gets really Machiavellian.

There’s a strong possibility the White House did not expect anyone to notice, because part of their logistical scheme involved telling the ship operators to wait further offshore so that it would give the illusion of less congestion near port:

CALIFORNIA – […] “Starting Nov. 16, ships waiting to anchor at the ports of Los Angeles and Long Beach will have to wait for a green light about 150 miles from the coast, the Pacific Merchant Shipping Assn., the Pacific Maritime Assn. and the Marine Exchange of Southern California said in a statement Thursday. That compares with 20 nautical miles (23 miles) now. North- and southbound vessels must remain more than 50 miles from the state’s coastline.” (read more)

That announcement was followed up by Oakland port officials when Pete Buttigieg made his trip earlier this month.

OAKLAND – […] Following its success in Southern California, the new system is being expanded to the Bay Area. Ships will wait 50 miles off the coast in a safety and air quality zone until their scheduled arrival time at the Port.

The new system became effective Monday. Ships will get an arrival time based on when they left their last port of call. Before Monday, ships were given an arrival time when they were fewer than 80 nautical miles from the coast.

The new system will allow ships to take their time getting to Oakland, reducing emissions while at sea. It will also allow more space between vessels at sea, making shipping safer especially in the winter when storms are brewing.

“The resounding success of the new container vessel queuing system in Southern California has set the stage for this expansion to the Bay Area,” said Jim McKenna, president and CEO of the Pacific Maritime Association, which represents maritime companies that do business on the West Coast, in a statement.   “This updated system has reduced the number of vessels at anchor near our ports.” (read more)

We call this “Operation Hide the Ships.”

What the White House supply chain taskforce did was move the line of awaiting cargo ships further offshore to make them less visible.  Then the White House just started making up talking points about productivity at the ports increasing and capacities expanding; neither claim is based on facts that surface in the actual operations of the ports.

The purpose of telling the ships to await their port time in a queue farther offshore is transparent.  The Biden administration wants to give the illusion they eliminated the bottleneck of container ships.   Out of sight is out of mind.

Operation ‘Hide the Ships’ allows the administration to make claims about port efficiencies and increased productivity that are abjectly false.  The data from the two months after the October announcement shows less container offloading and onloading happened in November and December than happened in the prior month of October when the new initiatives were announced.

To sum this all up.  What we have here is an obvious situation where not only did the Biden administration manipulate a false impression of a port supply chain improvement, they also leveraged the import product reporting delay to inflate U.S. economic statistics.

Knowing that, what else are they lying about?

Earlier Outlines and citations:

December 31, 2021

January 11, 2022

January 19, 2022

Posted originally on the conservative tree house on January 27, 2022 | sundance | 123 Comments

The Bureau of Economic Analysis released the Fourth Quarter GDP (Q4) data today [DATA HERE], and the White House will likely spin a victory message.  However, the real economic picture is covered by the continued storm of inflation.

Gross Domestic Product (GDP) is the dollar value of all goods and services produced in the economy, minus the dollar value of goods and services we import.  The percentages discussed are percentages of change over time.

The fourth quarter result was an increase of 6.9 percent over the prior quarter.

The total U.S. economy is now estimated around $23 trillion annually. [Tables pdf Here]

What the GDP doesn’t show is the diminished purchasing value of the dollar and/or the actual rate of inflation which towers over the valuation.  With goods and services costing much more, the estimated value of those goods and services (the amount of money spent on them) increases.

Because we are in a severe inflationary cycle, the resulting evaluations of the economy are skewed.  The BEA attempts to remove the inflationary impact of their evaluations, but they do so by using a 5.5% inflationary rate, which is a much lower inflation estimate than actually exists.

Essentially, there is so much inflationary noise in the prices of goods and services, any calculations by the government are simply estimates of what they think the value of the underlying economic activity is worth.  Bean counters are paid to count beans with rules on what each bean is worth.  If the rules are wrong, the valuation result from the counters is wrong.

To give you an idea of how far these figures can be flawed, let me share an example of costs from a company and sector that touches all our lives.

DOW chemical is likely the one company in the world that generates more originating products and raw materials than any other.  DOW touches your life and is likely the raw material provider for almost everything around you.  DOW generates petroleum chemicals, plastics, rubber and solvents that are in virtually everything.

From cars, clothes and furniture to plastics, Styrofoam and containers, DOW is the originating manufacturer of almost all of it.  Dow provides the originating material in the supply chain that is then carried forward into all levels of manufacturing.

One sentence from Dow is all you need to see to understand what the current rate of inflation is within the supply chain:

“Prices climbed 39% in the fourth quarter from a year earlier, while volumes fell 4%.” (link)

The cost of producing and processing the industrial products that Dow handles jumped 39%.   Those massive increases in costs are at the very beginning of the supply chain.  Those prices are then passed along to the next level of manufacturing, and then the next level of component creation, and then the next level of assembly, until a final product is created, sold, transported and delivered to the seller.

The beginning product, the raw material, starts with a 39% increase in price.  That is the scale of origin level inflation that works its way through the system until it finally reaches us.

Notice, Dow also said the net volume of their product outputs “fell 4%.”   So, they made less stuff at a much higher price.

Take that example and overlay it into the GDP consideration.  Remember, the GDP isn’t a measure of the actual outputs of stuff created, the Bureau of Economic Analysis is only measuring the aggregate value of the stuff, ie. what it’s worth.

• 20 trillion units at $1.00 per unit equals $20 trillion dollars.
• 20 trillion units at $1.05 per unit equals $21 trillion dollars.
• An increase of 5% in economic valuation (GDP), but we haven’t created a single product more.

Did our economy expand at 6.9% in the fourth quarter?  Or are we just seeing the increased valuation of goods and services, while the actual outputs in the economy are shrinking?

Did you pay 20% more at the grocery store and leave with 20% more food stuff?  Or did you pay 20% more at the checkout and leave with the same or less food stuff than previous?

I think we all know the answer to those questions.

Checkbook economics is the only economics that matters.