Inflation, Mispricing, Shrinkflation, And Out-Of-Stock: Is A Food Supply Crisis Or Shock Imminent?

Something’s not quite right…

(by Half Dollar) Sometimes I wonder why I shop at Costco?

Crazier yet, why in the heck do I pay to shop there?

In a day and age where “shopping around” is easier than ever, I find Costco less and less price competitive and often times more expensive than the competition.

Wifey and I justified the purchase of a Costco membership because we could fuel up our vehicles and whatnot exclusively at Costco, which is one of the closest gas stations to where we live, and we were thinking that the savings from the purchase of fuel alone would more than pay for the membership.

The fine employees at Costco, after all, brag about their fuel as a selling point of the membership, touting its price and the quality, and to be quite honest, it kind of feels like a cheap psyop in that I never look at the price of fuel anywhere anymore, but rather, I just go to Costco whenever I need gas.

Although I nearly always run the higher grade stuff in my vehicles, and they all seem to like it, so there’s that.

The problem now, however, is that the Zombie Apocalypse happened, and so did a gigantic reduction in our fuel consumption, so how much fuel are we really purchasing now, and, more importantly, how much are the purchases saving us when compared to the Circle K or the other gas station which is just as close?

I mean, did anybody else buy a brand new giddy-up pick ‘em up truck last Summer and still have less than 1300 miles on it today?

Now, I think I’m a “Gold Member” of Costco, or an “Executive Member”, or whatever the heck they call it, but contrary to what the title makes it seem, it really comes down to how much one wants to pay for his or her Costco membership in the first place.

We are paying $120 for our membership, which is the top tier, so to say.

I remember getting a bunch of free stuff when we originally signed up for the more expensive membership plan because with that plan, Costco gives some perks to Veterans and others, but now that a couple of years have gone by, and since Costco only gives those freebies once, I saw no reason to continue to pay for the most expensive membership at Costco just for the privilege to shop and pay more for my groceries at Costco than I pay for them at Walmart.

Or Kroger.

Or Wherever.

Seriously.

So, we could pay $60 for the cheaper membership, and as far as I could tell, there was no reason to pay twice as much for the same thing.

Well, I was wrong.

Again.

It happens.

You see, I forgot that the “cash back” check from Costco only comes if you have the more expensive membership, and I didn’t realize this, but upon inquiring about a downgrade, the fine employees at Costco informed me that I was already getting $73 cash back this year, in addition to whatever I spend in the next two months, or until the end of the year, or something like that.

I hate those stupid plexiglass screens that do nothing other than make everybody shout through their muzzles, by the way.

But I digress.

The bottom line is the more expensive membership gives 2% cash back, with the exception of cash back on the purchase of fuel, of course, and the amount I’ve spent so far for the year-long period is lowering the cost for what I would have paid outright for the cheaper membership itself.

In other words, we’ve got ourselves a mispricing!

Here’s my first point, and I’ll ask it as a question: If we are in an inflationary environment, then how long will it be until Costco is essentially paying us to shop there?

I don’t know if they cap, or limit, the cash back, like possibly at $120 or something, but the fascinating thing is that this arbitrage is really a sign of the times, and it won’t be long before that dog don’t hunt.

That is to say, think of the administrative costs of opening up a membership and collecting $120 from the public for it, but, among other things, having to take pictures of two people, because two people per membership can get one of those nice, plastic Costco ID cards, which also have a cost, greeting the members on their way in to shop, thanking the members and checking their purchases on their way out, having generous return policies and satisfaction guarantees, and, on top of all that, giving members cash back every year in the form of an actual, hard copy rebate check, for use in Costco, that exceeds the cost of the membership itself!

What, are they going to make it up on volume?

Here’s the point: This highly inflationary environment is going to create all sorts of havoc and mayhem on businesses all around, and those businesses who are not quickly able to adapt are going to be losing a lot of money and losing it fast.

But wait, there’s more!

That’s right folks, because I didn’t put the words “out-of-stock” or “shrinkflation” in the title for nothing!

What got me interested in writing about Costco was an article I skimmed at everybody’s favorite wannabe alternative-media website which highlighted the shrinkflation in Costco’s paper towels.

We buy those paper towels, and sure enough, the ones we have at our house are the pre-shrunk paper towels, the full 160 sheet rolls, and the ones on offer in Costco right now are currently the 140 sheet rolls, but I must say, Wifey says the price has gone up too, so it’s not just that there are less paper towels per roll, but the paper towels also cost more.

We also grabbed some other things at Costco to stock up on because, well, “money” in a checking account or in a savings account is losing purchasing power by the day, and the Fed is doing its darnedest to make sure prices go up moderately above 2% for some time so that inflation averages 2% over the long run, so it’s basic math, really.

But rising prices and shrinking products aren’t what was alarming to me.

What was alarming was the stock of non-perishible foods in general, and rice in particular.

Costco generally has a lot of rice in stock, and a big selection, in huge bags stacked on wooden pallets, of course, with additional pallets of rice being stored overhead on those heavy duty metal warehouse shelves, ready to be lowered and offered to customers with the slightest of ease, and a forklift.

But not this time.

The selection of rice was good, but all things considered, across the board, the supply was very low.

Why was the supply of rice so low?

And it was not just rice, but lots of non-perishable food stocks were quite low, but since rice is such a staple food around the world, the supply of rice, or lack thereof, is what sparked my interest the most.

Certainly Costco sees the rising prices on the back-end, so would it not be in Costco’s best interest to buy as much rice as physically possible to store?

In my opinion, our particular Costco would get wiped out of rice in a matter of hours, and probably less than one hour, even if Costco restricted the purchase to one bag of rice per member, if there was some sort of panic.

Last week I wrote about something the Biden Administration did that will contribute to immediate, extreme food price inflation:

This is coming just at a time when it seems food product and availability is about to become tested and most likely stressed once again, and if I may add, there were a few things we were looking to stock-up on from Costco that were not even in stock at all, including certain cookies, certain beans, and a couple of other things that my family enjoys that I’d rather not mention.

Which leads me to my main point: This food price inflation has been building for some time, and it’s arguably rampant now, but what if there are, dare I use the term, “food shortages”?

Consider the following: Instead of getting 5 ears of corn for $1 as recent as last year, or instead of being able to buy 10 ears of corn for $1 in years of plenty, at Costco, right now, you get 8 ears of corn for $5.99.

Ouch.

Of course, what happens when it’s 0 ears of corn for $9.99?

Here’s some food for thought, no pun intended: What’s really going on in India right now, what’s going on with rice right now, what’s going on with food prices right now, and, more importantly, will there be enough food?

Something’s not quite right, and it sure seems like there’s way less food available.

And sure, there’s a lot of other non-food stuff now, like toilet paper or paper towels, albeit at much, much higher prices and with less and less product per package, but toilet paper isn’t going to do a whole lot of good in the face of starvation!

People have been talking about the possibility of global food shortages for a few years, and the shortages haven’t happened in mass, yet, but there have been extreme shocks to the global economy over the last year and a half, and counting, from lockdowns to shutdowns to import/export restrictions to supply chain disruptions, so we might be at the point where we get a food supply shock.

Some people will simply not be able to afford to eat:

Sadly.

Food prices are no joke:

Calling these price increases “transitory” is a sick joke.

And to think, they’ve been calling wheat the laggard:

Not anymore.

Getting food to the store is also getting more expensive:

Sixty sure seems to be the new forty, and it’s only a matter of time before eighty becomes the new sixty.

Shameless plug time: Brian Ochsner and I discussed food supply/inflation/logistics a couple of weeks back –

Thank you for your consideration!

Copper’s basing above $4.50:

How exactly is any of this transitory, again?

Perhaps it’s transitory in the sense of transitioning off of the US dollar as we know it:

People still trusting in the system, with their stock market portfolios, their 401Ks, their pensions, and with their posh retirement benefits, will lose everything to inflation.

In my opinion, the only hope for survival in this is to get out of dollars, or any unbacked, debt-based fiat currency for that matter, including “crypto” “currency”, and get into real things.

For there is no hope in any of these ersatz investments:

Most people will learn the hard way.

And they don’t even see it coming:

Not that the Sheeple, the Brainwashed Masses, or the Walmart Zombies would, however.

Most people who can see it coming think they’re smart by riding the stock market’s inflationary wave:

The problem is being able to actually buy something with all of those winnings, something like, oh, say, food?

Everybody is sure the bottom is in for silver:

And since my calls have pretty much been spot on for many months now, perhaps it’s time for me to be wrong once?

Still, don’t rule out gold as the Cartel’s inflation Hail Mary:

At this point, it’s more about trying to slow the rise as it is about pushing gold’s price much lower.

We’re still in the mid-to-upper 60s on the gold-to-silver ratio:

It would be nice if we could see some progress on closing that gap this week.

Palladium is on fire:

Of course it is.

It won’t be long before platinum is on fire:

In fact, pretty soon, everything will be on fire, and everything not nailed down will go into hiding.

Thanks for reading.

Stack accordingly,

Paul “Half Dollar” Eberhart