Tag Archives: corn

09.28.2012 | Pork Problems

Announcing the cancellation of this year’s bacon eating contest, Major League Eating (“the world body that governs all stomach-centric sports’) said, ”We cannot, in good conscience, allow [top ranked eater] Joey Chestnut to eat bacon during a global pork shortage,…We estimate that Joey alone could eat 20 pounds of bacon in 10 minutes of competition.”

Where is the pork shortage?

First stop, the US:

Skyrocketing corn prices make feeding pigs so expensive that farmers are killing their livestock. Actually, we have a pork glut now–up 31% between last August and this August according to the USDA. But less livestock will probably create a shortage during 2013.

Next, the European Union:

Britain’s National Pig Association (NPA) reports steep declines in Poland’s, Sweden’s, and Ireland’s pig population. Compounding the problem, in the UK, the NPA says sow herd size will probably drop by 20%.

And finally, China:

With global pork prices ascending, will China need even more inventory for its Strategic Pork Reserve (SPR)? Created during 2007 after porcine blue ear disease diminished the Chinese pig population, the SPR continues to stock hundreds of millions of pounds of frozen pork that are ready for release when prices spike. (But, according to the NY Times, frozen pork only lasts 4 months so maintaining the supply is more complicated than just keeping frozen meat.)

This returns us to the bacon eating contest cancellations. With pork so pricey, pancake contests are getting more publicity. Here, an economist would point out the unintended consequences. Who would have thought that a congressional ethanol mandate could have pushed corn prices upward, the pig population downward, and led to more pancakes???

Sources and Resources: My information on pig populations came from a Foreign Policy blog, a Washington Post blog, this Huffington Post article, and on China’s SPR, here. To describe Major League Eating, I used their publicity.

Posted by: adminEcon
Tags: animal feed, bacon eating contests, bacon shortages, China, corn, demand, ethanol, Major League Eating, National Pig Association, pancakes, pig populations, Poland, pork prices, Strategic Pork Reserve, supply, Sweden, UK, US
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09.11.2012 | The US Drought and Pizza

Discussing the impact of this summer’s drought on pizza, Stephen Colbert said, “It is one thing for global warming to make the sea levels rise but nobody told me it could make my cheese levels recede.”

Colbert was reacting to an economist at the US Department of Agriculture’s Research Service saying, “…you’ll see less cheese on pizzas and in salad bars.” The reason? In 90 degree temperatures cows produce less milk, dairy farmers need costly sprinklers and fans, and the drought has also driven up the price of animal feed. As a result, milk is more expensive and more expensive milk means more expensive cheese.

Just imagine your cheese supply curve. When the cost of production increases, the upward sloping supply curve shifts to the left and crosses the downward sloping demand curve at a higher equilibrium price and a lower quantity.

Colbert also suggested that farmers switch to drought resistant crops like sun-dried tomatoes and raisins.

Because of the drought that is affecting close to 63% of the continental US (please see map below), in addition to dairy industry costs, 52% of the corn crop was in poor or very poor condition, more cattle was slaughtered because of skyrocketing feed costs, the price of ethanol has risen, and the northbound barge trip between New Orleans and Memphis takes 3-5 extra days. (With lower water levels, barges need to shed weight and also take turns moving through shallow areas.)

If the drought continues, the Department of Agriculture predicts a 3-4% hike in food prices for 2013. Since last year, food prices have gone up 2.5% to 3.5%. And finally, very interestingly, economist Ed Yardeni explains in his blog why QE3, the drought and the GDP are related. As with food prices, it all relates to inflation.

Sources and Resources:

My stats, the stories and the map below are from either this WSJ article, weather.com, or this USA Today report. A video excerpt from the Colbert Report was the source of all that Stephen Colbert said. Looking at my sources and their links, you will see the multiple ripple of impacts, ranging from pizza to crop insurance to a miniature golf business, that this drought has created.

Posted by: adminEcon
Tags: animal feed, barges, corn, dust bowl, ethanol, farmers, inflation, Memphis, New Orleans, rising food prices, soybeans, Stephen Colbert, US Department of Agriculture, US drought
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11.25.2011 | A Thanksgiving Mystery

Thanksgiving means more demand for turkeys. And yet supermarkets discount the price. Why?

First some turkey facts. This year, the American Farm Bureau says that the price of a typical turkey is up 22% from last year. According to Slate, the price of the typical supermarket frozen turkey has been increasing since the 2007 recession began.

One culprit is corn. As this turkey farmer said, “Any time corn prices jump, our costs go up a lot.” Revenue may be record setting but not profits.

But still, knowing the once a year turkey buyer is price-sensitive, your local supermarket will probably charge 10% less than its October price. Similarly, during Lent, food stores discount tuna. And people pay less for beer during the 4th of July weekend.

Finally, priced from $75 to $100 and more, here is a turkey for which buyers are not price sensitive.

The Economic Lesson

Knowing that the Thanksgiving turkey customer is price sensitive, food stores charge less. But, they make their money on relatively expensive complementary goods like sweet potatoes and cranberries and cream of mushroom soup.

Looking at a graph, you would see the demand for turkeys rise. As a result, the demand curve for a complement would also shift to the right.

An Economic Question: On a supply and demand graph, how would you illustrate the increase in typical Thanksgiving supermarket turkey prices?

Posted by: adminEcon
Tags: corn, demand, supply, Thanksgiving, turkey
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08.11.2011 | Chinese Pork

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?

Posted by: adminEcon
Tags: Chinese food inflation, corn, demand, supply, wheat
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04.11.2011 | Food or Energy?

Biofuels create dilemmas. Whenever nations mandate converting corn or sugar into biofuel, their prices soar. People whose diets depend on these commodities are the first to suffer.

What to do? Lower food prices or increase energy conservation?

China’s answer was to ban using grains for its biofuel. Sort of like patching a leaky boat, the problem just shifted. Now, the NY Times tells us that instead of grains, China is using cassava chips. A major Thai export, cassava chips have soared in price. Predictably, the millions in Africa for whom cassava is a dietary basic, face higher prices and shortages.

The Economic Lesson

Demand, supply and opportunity cost tell part of the story. Whenever demand shifts to the right for a commodity, the price increases. Then though, the supply side rethinks its planting decisions. The opportunity cost of remaining with a cheaper commodity becomes too high. As a result, growers have the incentive to switch their crops. Then, supply increases and price drops.

The other part of the story involves the role of government. Do you agree with government mandating energy sources?

Posted by: adminEcon
Tags: biofuels, cassava, corn, demand, opportunity cost, supply
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