Wednesday, October 19, 2016

Grocery deflation reaches 10-month mark


Rather "the oil monopoly rent was just too damn high!"

Still current evidence of monopoly rent removal working its way thru the US food chain at the retail level.

Bearish interest rates (to them) short term...





3 comments:

alexi de sadesky said...

Matt,

Can you elaborate on this a little more? I find your posts on prices/monopolists absolutely fascinating.

Do you see this as a bottom with oil prices picking back up?

Matthew Franko said...

Still working its way thru the chain it seems Alexi.... petro has been over $100 here and now it is in the $40 $50 range so it has come down quite a bit... iirc it bottomed in late January 2016 so that is only a few months ago...

Sellers try to hold the line on prices but with the fall in the petroleum costs eventually somebody caves in on price and everybody then has to compete on price so the prices come down as the petro cost savings is realized thru out all of the system hierarchy...

First its petro then its feedstocks (grains/feeds) then its livestocks (beef/pork/chickens)...

Then it has to work thru the wholesale level and then on to retail level...

EVerybody tries to hold the prices up but it cant last...

Retail will be the last to give up on price... so it will eventually bottom with petro imo but it is not synchronized in time domain... it will take some months to effect the different levels of production and sales markups...

The 'monopoly' thing I got from Tom here who got it from Marx.... Tom has the history on Marx as a pioneering economist and apparently Marx thought a lot about the different types of 'rent'.... in this case 'monopoly rents' (ie OPEC)

so we have a monopolist in oil (OPEC) and they had control for a pretty long time then North America increased daily prod. by 6 Mbpd and broke the cartel over 2015 and 2014....

Warren talks about this same thing wrt the early 80's here at the 13:00 minute mark:

https://www.youtube.com/watch?v=ow2zJsACruA

Back then it was increased Nat Gas production this time it was the fracking in NA which increased non-cartel production by 6Mbpd and eventually the oil price broke here in USD terms....

so it bottomed in late Jan and here we are 9 months later and its still working thru up the supply chain... probably almost done...

Here is another video all you can see ex-humans is steel and diesel fuel (both WAAAAY down in price) at work:

https://www.youtube.com/watch?v=sTOF0gEKLQY

"It's harvest time in this little town
Time to bring it on in
Pay the loans down
Fill our diesel tank up
And make another round
"

So steel and diesel prices feed up into just about everything produced...

Oil is in surplus here I do some traveling in the Delaware basin (light crude refining area exclusively.. ie Bakken crude...) and there are just miles of crude carriers all pushed up on semi-abandoned branch lines sitting there for months so oil has really collapsed...

http://mikenormaneconomics.blogspot.com/2016/01/crude-price-rout-continues-in-face-of.html

The lower crude/steel prices eventually lower the prices of the products that depend on them..

alexi de sadesky said...

Thanks, Matt. Really enlightening and very well explained. I appreciate it.