Friday, July 11, 2008

The Elephant

Time to address the elephant in our lives:

Fuel prices.

Just today I am seeing rumors over the net of oil reaching $200 a barrel, some saying a couple years, some saying by Christmas. This puts a gallon of gasoline somewhere in the $7 plus range, and diesel over $8.

Now think about this for a minute or two, if you would......

A can of Campbell's soup is already nearly $2. A loaf of good bread, about $4. Eggs are what? $3.79 a dozen? Milk is still managing to stay under $4 a gallon when marketed as a loss leader by the grocery stores. Sugar is already fifty cents a pound, and nearly the same for flour. Dried beans in small packages are pushing $2 a pound. Almost all meat or protien is a minimum of $3 a pound.....including peanut butter. Butter can be had for $4 a pound too.

And let's talk about hay and grain. Locally, it has been a dismal year so far, for yeilds and weather. We just haven't had any sun! Cool and cloudy for week after week, and no rain when it's needed, and too much at the wrong time for good quality hay. We can hope for a decent second cutting, but I won't be holding my breath for that. Supplies in the PNW are not that great, but shipping is through the (very high) roof and continuing to rise. I have been telling hay customers to stock up as much as they can as I expect landed cost to surpass $600 a ton by the first of the year. Grains are skyrocketing in the Lower 48 as well, with some areas paying triple what the price is on a bag of similar feed locally. This just means the increases have not trickled their way up our supply chain as yet-but it's coming.

What is going to happen up here, as a practical matter, when oil reaches that high?

People are not going to be able to get to work on wages that have not risen at the same pace, without carpooling if they can. People will start cutting back, and back, and back. But still, you can't very well go without heat in Alaska in the winter. And this is where I see the real crunch coming. Some will pack up and leave while they can. Others will have their hands out for a rescue from the State. And some will go broke making fuel bills as large as mortgage payments. Smarter folks, or old timers, have already prepared for the coming winter. Discretionary spending will cease, and many small businesses will fold-putting more folks out of work. The trucking industry will crumble (its already on life support) and moving goods from ports and producers, into cities and small towns will become difficult. This will mean spot shortages on consumables from time to time, for sure.

Alaskans being the self reliant bunch they are (for the most part) I have not heard a peep about anyone thinking of forming a grocery or feed co-op. It takes a LOT of money to put together even one van (I should know, a van of hay is well over $12,000)and while it may seem out of reach, I do think it could be done with enough participation.

More on this subject coming.....

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