Your grocery bill is likely to get a lot higher

Less than 2 months ago, Wisconsin dairy farmers were dumping milk because they weren't getting enough money for their product, with the USDA noting that prices were at their lowest levels since 2009 (before inflation, mind you). Then prices stayed at depression levels in May, with futures closing at $12.16 per hundredweight.

But take a look at what’s happened to June futures in the last 6 weeks, after bottoming below $11.

That’s an 83% increase! Guess we know where some of that stimulus money from the Fed and DC is flowing to.

The milk futures dwindle back below $17 per hundredweight by September, but that still will be a major difference for both farmers and consumers in the coming months. Cheese prices show the same pattern, getting below $1.15 in this chart in late April before jumping nearly 80% since then.

And it's not just in dairy products where we see Wisconsin grocery prices set to noticeably jump.

Observers say manufacturers have been reducing or eliminating incentives — demand is so high they don’t need to offer deals on anything — and, at least temporarily, that will lead to higher prices at the supermarket.

"We follow it closely and we’ve noticed in certain categories, the amount of product on deal — or on some sort of discount — has dropped off in the last couple of weeks pretty dramatically," (grocery consultant Rick) Shea said. "The consumer doesn’t notice as much because they are just glad to be able to get products…

“You will start to see inflation creep into the food supply at the grocery market,” Shea added.

Another factor is that more shoppers have tried to avoid going into the store to get their groceries. This may improve convenience and lessen exposure to COVID-19 for the consumer, but it ends up costing the store more to do.

Pickup and delivery also come with a cost to grocers. Where shoppers once did the picking and gathering of their bread, milk and bananas, employees are now increasingly doing that in the online order and pickup or delivery models.

“All these services cost money,” Shea said.

The pickup and delivery will never replace the brick-and-mortar store, grocers said. But they are quick to add that it's crucial for them to offer every possible option for customers to make purchases.

In addition, there is an up-front cost that comes with building automated checkouts to reduce human contact and possibly make up for some of the extra labor costs required in having online checkout.

But that doesn’t mean supply, demand and store costs completely accounts for the coming rises in food prices. For example, Politico reported last week that the beef industry is being investigated for non-competitive practices by the Trump Administration (!)

The Department of Justice is looking at the four largest U.S. meatpackers — Tyson Foods, JBS, National Beef and Cargill — which collectively control about 85 percent of the U.S. market for the slaughter and packaging of beef, according to a person with knowledge of the probe. The USDA is also investigating the beef price fluctuations, Agriculture Secretary Sonny Perdue has confirmed.

Meatpackers say beef prices have spiked during the pandemic because plants are running at lower capacity as workers fall ill, so less meat is making its way to shelves. The four companies didn’t respond to requests for comment about the probes.

Beef farmers certainly haven't been getting the benefit of those higher store prices. For example, beef futures may have rebounded from the rock-bottom levels of a couple of months ago, but they are still well below where they were at the start of 2020.

Ed Greiman, general manager of Upper Iowa Beef who formerly headed the Iowa Cattlemen’s Association, attributed the consumer price increase to plants running at lower capacity. At the same time, farmers and ranchers desperate to offload their cattle as they reach optimal weight for slaughter are cutting prices so they won’t have to kill the animals without selling them.

“I’m running at half speed,” Greiman said at an event hosted by the Nebraska Cattlemen’s Association. “Cattle are backing up because we can’t run our plants fast enough. Nothing is functioning properly. We need to be careful not to put blame on any one thing or part of the industry because we can’t get these plants going."

So someone is making a lot of money in the difference between the low prices that beef farmers get, and the high prices that consumers are paying at the store.

The prospect of these higher prices looks to be quite a headwind as we move into the Summer. Many individuals aren’t going to be working off of the incomes they had at the start of the year at the same time that they face food inflation. And the restoration of oil and gas prices from the absurd lows of April is also going to cause inflation to rise in the coming months, and will cut into any kind of growth that comes in.

So just as Wall Street and TrrumpWorld are counting on the economy to bounce back in June, we're likely to start seeing consumer prices jump while real farmers have to make up for the major losses they took in the first 5 months of 2020. Doesn't seem like a recipe for the average American to get back toward a comfortable financial situation to me.