9/15/2011

From Corn to Beef ... and Everything in Between.

Just going for groceries is not as cheap as it was a year ago, and for the average consumer, might even cause one to plan for more budgeting. One of the main drivers for these price increases is not just a result of high inflation of the US Dollar that you read streaming across the TV screen every morning as you eat your Wheaties. Bruce Blythe is a business editor for The Cattle Network. In Blythe's article titled: "Supermarket meat, dairy inflation accelerates in August," he explains, "Supermarket dairy prices last month posted the largest increase in over three years and beef and pork inflation also accelerated as high feed costs and tight animal supplies forced consumers to pay more for steaks, chops, milk and other products" (Blythe).
There is a great effect between economic complements and substitutes in agricultural production. For example, milk cows are not just used for milk. If a milk production cow does not produce an adequate amount of milk to cover its own costs, that cow will be culled (sold for meat). Meat and dairy markets work simulaneously. If I sell a milk cow for beef because of inefficiency, the supply of milk decreases and the supply of meat increases. Legitimately inflating milk prices and deflating beef prices.
Now, let us say the Central US is flooded for two months longer than it is normally. This lowers the supply of corn, of which, is a staple for people and animals. This increases the price of corn which is an input cost for animal production, relaying that cost throughout beef and milk prices and to you the consumer.
This is great food for thought next time you sit down for a steak at Texas Roadhouse or Outback Steakhouse.

10 comments:

Thomas said...

This post makes me think of a questions I have had:

Do they really plant 3 trees for every 1 they cut down?

Dr. Tufte said...

The Cattle Network???

I don't think I get that on Dish ...

Funny you should bring this up though. I was actually wondering last night why we don't get more MBA candidates who have ranches or farms.

Anyway ... I think the post doesn't flow very well ... but it's got a lot of good stuff in it.

Interestingly, most of the stuff that you learn about complements and substitutes came out of initial studies of agricultural demand and supply.

Cameron said...

If corn has no readily available substitute such as wheat or barley, then the price of beef and milk would go up as would the cost of corn for human consumption. The real question is, does corn have any suitable substitutes as feed for livestock?

Belba said...
This comment has been removed by the author.
Dr. Tufte said...

Belba: I can't give credit in a ManEc class for this, because there isn't anything about ManEc in your comment.

Belba said...

According to the article Cattle, Corn and Alternative Feeds, corn substitutes for livestock do exist. Farmers need to be aware of corn substitutions as the price of corn increases; they will need to know what they can use for alternatives. Farmers also need to be aware that as corn prices increase, the demand for corn substitutes will also increase. In choosing substitutes, special considerations should be made. A farmer should base substitute choices off of the needs/goals for the cattle. They should pay close attention to factors such as availability, cost, and storage as necessary. This article displays tables for corn substitutes based on nutrition compared to alternatives.

Dr. Tufte said...

Better ... but it's OK to leave up something I have issues with as an example for others to learn from.

So, what's going to happen to the prices of substitutes for corn as the price of corn rises?

sjenn said...

Interesting post. Most of us don't realize how much these issues directly affect our local economy right here in Southern Utah.

Recently, there was a huge dairy constructed west of Cedar City near the town of New Castle. The owner of the dairy runs a large scale hay cubing operation nearby. He has now allocated a huge portion of hay to feed within his own dairy, which has effectively lowered the supply of hay in our local market. As a result, hay cubes in the local market have risen from $150 per ton to $280 per ton over the last year.

Lando said...

Hay cubing has driven hay prices up significantly in the past decade, especially hay exported to the middle east. There is the issue of cubing, as well as horses becoming protected from slaughter under federal law just a couple years ago. This is extremely harmful to the dairy and livestock producer industry because horses cannot be culled (put out of their misery when they are old). These horses must eat hay. There is an ever growing demand on hay which significantly shrinks margins for dairy and beef producers as hay prices continually increase.

Dr. Tufte said...

Don't you mean exports to the "Far East" not the "Middle East"? Just wondering.