Friday, November 9, 2012

Why 2013 will be more expensive for bacon

"What can I get for you today?"
"2 eggs, scrambled.  Toast, Hashbrowns, and a side of bacon."
"Ok, bacon is an extra $4, is that fine?"

This is a fictitious conversation that may happen at diners across the country in 2013.  Why might this be the case?  Well you have to look at the costs of production to go from farm to table to understand...

1.  Farmer "Dennis" raises pigs
  • Costs of feeding pig, taxes on land, and transportation to slaughterhouse 
2.  At slaughterhouse
  • Cost to slaughter pig, package pig, deliver to grocery store or restaurant or distributor.
3.  At Restaurant
  • Overhead (restuarant equipment, taxes, wages)
I highlighted Costs of Feeding Pigs because of two main factors: Bernanke money printing, and the severe drought suffered throughout the Midwest in 2012.  Bernanke's money printing is seeping into the system, but the dought might have the biggest impact.  Since the pigs feed off of corn and grain, farmers realized High Corn Prices to Stay, and brought their pigs to slaughter earlier than expected. This rush of pigs to slaughter will DECREASE the cost for bacon in the short run because of an increase in supply, but will lead to an INCREASE the cost for bacon in the long term as there will be less pigs to slaughter.

Just "food" for thought!

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