The Chinese might be dipping into their Strategic Pork Reserve. Faced with a 57% increase in pork prices, the Financial Times tells us that the Chinese will be “rushing” extra pigs to market to lower the price. Higher feed prices are one source of the spike in the price of pork.
Meanwhile, in the U.S., chicken processors Tyson Foods and Pilgrim’s Pride are also reacting to higher feed prices. Soaring corn costs have meant the switch to wheat from corn for a part of their chickens’ diet. Traditionally, as people food, wheat has been more expensive. Now though, because of demand from China and ethanol, corn prices touched $6.7525 a bushel while wheat was 19 cents cheaper. Like Tyson and Pilgrim’s Pride, Chinese hog producers are purchasing more wheat.
The Economic Lesson
This is classic supply side behavior. As the cost of production rises, producers switch to a cheaper input to lower their expenses.
An Economic Question: Thinking of corn flakes and Wheaties and demand and supply, how might the corn wheat flip-flop in prices affect popular cereals?