We went for a bit of a stroll last night. It’s what we do most nights this time of year.
We walked up the hill behind our house – taking a break to look at the tomatoes, the broccoli and the peas. Further up the hill, we stopped to check in on the corn and the watermelon patch. All the way up, we leaned against the fence and watched our beehives do their very best to stay cool during an early July heat wave.
As we gazed at our crops, we wondered if they’d be enough.
You see, while few folks have any idea what’s happening, there’s a fresh crisis brewing in America.
We liken it to the devastating financial crisis in 2008. But this time it’s not just money that will disappear.
No. This time, lives are on the line. And no bailout package can right these wrongs.
The Fed can print all the money it wants… but it can’t make more food.
Even the Big Can’t Keep Up
What’s happening is scary. The numbers are shocking.
Get this. Over the last four years, farm incomes have been cut in half. The problem is so bad this year that the average American farmer is expected to lose money in 2018.
And with no money in the game, farmers are closing up shop like never before.
There are fresh reports that the number of farmers in America is about to plunge below 2 million for the first time since our nation expanded west more than 200 years ago.
It hardly matters what type of farm – crop, pig, beef, poultry – they’re all feeling the pain.
But perhaps nowhere is the pain more pronounced than in the dairy sector. That’s where we’ve seen the number of farms plunge by more than 90% over the last generation.
You’ll recognize the sad reason why.
We certainly can’t blame everything on Walmart. But what it’s done in recent months is a strong example of what’s happening across the nation and across a vital industry.
As is the case for most things it sells, Walmart goes through a lot of milk each year – hundreds of millions of gallons.
If it can earn an extra dime or so from each gallon that hits its coolers, it will make big money.
That’s why the company recently made a big move. It jumped into the dairy business. Cutting out a sizable middleman – Dean Foods – Walmart built its own processing facility.
Immediately after hearing the news, Wall Street took 12% off of Dean Foods’ share price.
The put-out dairy processor did what it had to do. It called more than 100 farmers in eight states and canceled their contracts.
Many of them were forced to sell their cows and close up shop.
But that’s not the scary part. This is…
Walmart’s new facility covers just a sliver of its domestic stores. The new facility will produce milk for just 600 of its 5,000 stores in the U.S. – and, even so, it represents a full 3% of the nation’s dairy capacity.
As Walmart ramps up, it could soon be responsible for more than 25% of the industry – just as it’s responsible for a quarter of the nation’s total grocery sales.
Needless to say tensions in the heartland are high. Folks in the know are gearing up for the next crisis.
“If the farms keep getting bigger and bigger and they keep hiring immigrants, they can make all the milk they want to,” said one farmer whose family farm has been in operation for 180 years. “People like us will be the ones working for them.”
The New Face of Too Big to Fail
But it’s not just Walmart.
In fact, the company that many say could put Walmart out of business is jumping headfirst into the food business.
Amazon’s purchase of Whole Foods was a game changer.
“Your margin is my opportunity” is one of Jeff Bezos’ favorite sayings. And when he reached out to grab one of the nation’s most popular grocers, the food industry heard his message loud and clear.
Competing grocery stores immediately began slashing margins. And one of the easiest ways to do it was to focus on the suppliers with the least amount of leverage – the mom-and-pop farmers.
But like we said, margins for small-farm America are nonexistent. This year, in fact, they’re negative.
Farmers will be forced to close shop and get a job greeting customers at the very stores that put them out of business.
Most consumers will never stop to think about what’s happening. They’ll enjoy lower prices and convenient shopping… just as they enjoyed booming housing prices and the boats they purchased with their home’s surging equity in 2007.
But once again, this mess will become so big that it can’t support itself.
With one tariff misstep… a bad drought… or even another corporate financing goof… a system that many will agree is too big to fail will fail.
And when it does – when a company like Walmart or Amazon can no longer balance its books – Washington won’t be able to print its way out of the mess like it did when the system went belly-up in 2008.
Nope, by then it will be too late. The backbone of the industry will be gone – having sold its farms to some corporate beast.
It will be painful. You can’t print food.
But many readers will say it won’t happen anytime soon. They’ll say the system is too strong… that the system is working as it should.
We’d bet those are the same folks who tossed their keys on the floors of their houses, locked the doors and walked away in 2008.
It’s going to happen. And when it does, we’ll be glad our garden is lush and bountiful.
This is a disaster we won’t be able to walk away from.
Only our Know-How will preserve our Liberty.
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