Minnesota Farmer

High corn price does not = high food prices

The city announcers are telling the woeful story of higher food prices to come.  They are telling everyone that because corn prices are going up dramatically we will be having higher food prices soon. Here is why they are wrong.

Although field corn seems to be in about everything, it is only a small part of those items.  The only foods that will be majorly affected by higher corn prices are things like corn chips and corn flakes, and most of those are priced already for some time to come.  They also only have about 5 to 10 cents of corn in that $3 box or bag.

Buyers of commodities like corn use the Chicago Board of Trade to “lock in” their needs for some time to come in the future.  They will buy massive amounts of corn as “contracts,” in 5000 bushel lots, when prices are low, and sell those same “contract” bushels when they actually buy corn.  Thus they can even out the cost of the corn they need.  They can hold off the day they really have to pay up for higher priced corn.  If the price of corn goes down as it usually does at harvest, you can be sure they will be buying more corn.

Many growers of corn for items like corn flakes and corn chips grow special types of corn under specialty contracts.  These contract prices have already been set for this year.  They may go up for next year if there is a shortage of corn produced, but buyers resist changing the price too fast.

The price of corn does not directly reflect the price of meat.  Grains like corn, wheat and barley are a major part of the rations of chickens, turkeys and pigs, and to a lesser extent cattle.  Most producers of these animals either raise their own grain or buy it on the open market.  They lock in their grain needs just like the producers of corn flakes do.  The next generation of meat animals may require higher prices, but this one is set.

It takes time for the price of grain to cause a price change in meats, and usually the first effect of higher priced grain is for the price of meat to go down.  Producers of meat animals will discontinue production of meat animals if they cannot make money as their input costs go up.  This will mean that the mothers of these meat animals will be sold into the slaughter market to cut losses for producers.  This will create an initial drop in the price of meat products before it goes up if demand remains constant.  The exact opposite occurs as profitability goes up and more livestock are kept out of market for breeding purposes.

There are many reasons for food prices to go up, and you can be sure that your grocer will use any and all of them to tell you why you must pay more for food.  The fact remains that the farmer only gets about 10 cents of your food dollar.  If commodity prices were to double on the farm, you could expect only a 10% increase in food costs.  Anything over that is going to someone else along the food supply chain.


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