Tag Archives: wheat

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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03.30.2011 | Cotton or Corn?

One farmer told the NY Times, “It’s going to be cotton stalks everywhere.”

With cotton prices soaring, acreage in Texas and other Southern states that had been used for wheat or corn now has cotton growing.

The result? A smaller increase in the U.S. corn and wheat crops; and much more cotton. The Times calls it an “acreage war” between the crops that clothe us and those that feed us.

The Economic Lesson

This is classic supply and demand. For cotton, the increase in supply will eventually push price down. Meanwhile, for corn and wheat, as supply is less than it would have been, price remains elevated.

On the demand side, with these supply curves moving, the quantity demanded will change. For cotton, the search has begun for alternative fabrics. And, as we previously noted, when crops get higher prices, so too does the land on which they are grown.

Consequently, even corn farmers are happy that cotton’s price is high.

Posted by: adminEcon
Tags: commodity prices, corn, cotton, demand, supply, wheat
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02.07.2011 | A Race Between Supply and Demand

In a wonderful Chip Bok cartoon, a child starts by asking, “Why are gas prices so high?” and is told, “Turmoil in the Mid East.” Then, asking about the turmoil, he is told the source is “High Food Prices.” The reason for high food prices? The cartoon concludes with, “Because we use our corn for gas.”

The cartoon summarized what economist Timothy Taylor says is a race between supply and demand. If supply lags (Mid East oil), then price rises. Also though, when demand pulls ahead (corn and biofuels), prices go up. You can see then, for lower prices, we need demand to pull back and supply to surge ahead.

The Economic Lesson

On the supply side, we could consider the impact of Egyptian turmoil on Suez Canal oil tanker traffic and of drought in Russia on wheat prices. Meanwhile though, new technology could increase yield.

As for demand, in the U.S., a biofuel initiative has led to rising demand for corn. In addition, more affluence in China, India and other developing nations has meant more consumers who eat more meat which means animals who eat more grain. Factor in world population growth and demand could surge.

Whenever supply accelerates and increases productivity, then the upward sloping supply curve moves to the right and crosses the demand curve at a lower price. However, if demand takes the lead in the race, the downward sloping demand curve shifts to the right and price rises.

Posted by: adminEcon
Tags: demand, oil, supply, wheat, world food prices
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