Link between Inflation and Grain Prices..

[BA Deere]

careful.  This from FBN newsletter.

https://www.farms.com/news/inflation-and-commodity-prices-181318.aspx  

snip:

By Gary Schnitkey and Jim Baltz et.al
Department of Agricultural and Consumer Economics
University of Illinois

Carl Zulauf
Department of Agricultural, Environmental and Development Economics
Ohio State University 

Inflation rates have reached relatively high levels recently, raising questions about inflation’s impacts on corn and soybean prices. Overall, there is a weak positive correlation between inflation and commodity prices. We present a history of inflation rates based on year-over-year percent change in consumer price index, corn and soybean prices, and then discuss linkages between inflation rates and commodity prices. 

The change in long-run price in 2006 was not associated with a period of higher inflation. Inflation rates varied during the 2000s but did not reach levels experienced during the 1970s and early 1980s.

As a result, historical changes do not present a clear linkage between inflation and long-run price changes. While prices increased to a new higher plateau during roughly the same period of higher inflation in 1973, the higher prices likely had to do more with export demand than with inflation. If anything, the increase in commodity prices reinforced higher inflation.

Currently, corn prices are well above the $4.22 average representing the plateau since 2006 (see Figure 3). Inflation also is at relatively high levels. As a result, it could be posited that commodity prices have reached a new plateau similar to 1973.

There are reasons to be cautious of this view. First, linkages between long-run commodity price changes and inflation are tenuous. Second, we have seen prices at current levels in 2011 and 2012, after which prices fell well below the $4.22 long-run average. Third, previous changes in long-run prices are linked to long-run supply-demand changes: Export demand increased in 1973 and corn use in producing ethanol occurred in the mid-2000s. Currently, a factor causing a permanent or long-lasting supply-demand change has not been identified. Factors causing current higher prices are likely temporary, such as strong commodity demand from China that could be reduced with better Chinese crops or a Chinese recession, or an end to the Ukraine-Russia war in the future.

Even if a new long-run plateau occurs, it may not be at current price levels. Prices could average well below the current break-even levels of $4.73 per bushel for corn and $11.06 for soybeans (see farmdoc daily, December 21, 2021). Lower prices will likely occur in the future because of above-trend yields increasing supply.

[BA Deere]

Kind of like the sprockets on a old 7000 planter, don`t get the "driver" sprockets mixed up with the "driven" sprockets  🙂

[sdholloway56]

When I've opined to that effect I've been trolled mercilessly.

[sdholloway56]

The sharp rise in the food and energy components of CPI are largely due to specific fundamental factors.

Inflation-inflation of the monetary sort is probably running around 4%.

That needs to come down to 2 or less and hopefully the worst of the food and energy problems will subside, as they eventually always have before.

In that case you'd probably see a period of very low CPI prints- also not something to totally freak out over.

[BA Deere]

Just down below a few threads I posted that Ted Seifert couldn`t quite put a finger on where the $2 in above the fundamental value that corn has .. and wrote it off as "inflation".  That comes back to is corn the "driver sprocket" or "driven sprocket"?    

There are "inflation funds" who are in commodities as a hedge, always long ....until they aren`t.   If there`s enough money chasing a commodity, they can make you call them "what ever pronouns they feel like"  they drive corn up $2 too high, that makes "inflation" their "pronoun".    I believe inflation is actually a adjective 🙂

[sw363535]

Proof is in there somewhere......

Absolutely no correlation between inflation and higher commodity prices.

Commodity prices are never inflated.  As long as those prices are based on sales transactions between an actual supply and actual usage.

Inflation is never a function of a commodity.  Inflation is only a function of the value of currency.

In reality the dollar is only worth about 1/9 of a bushel of corn.... today.  

The amount of currency it takes to acquire an actual asset is a function of the value of the entity that issues the currency.  Inflation of currency is a complete function of the choices and miss choices of those serving in that government.

[BA Deere]

To me lumber and used car prices are amazing how consumers allow themselves to be willing patsies.  When lumber tripled in price, they went right ahead and bought $10,000 in lumber for a deck that had cost $3,000 a couple months before.  If it was me,  I`d go without the deck until times cooled down, if you`ve lived 10 years without a deck, you can sure wait another couple years without one.  Then with a 1 year wait on new pickups,  2 yr old used ones with 20,000 miles selling $5,000 more than new list price.  There is no way i would do that, if I had to buy a 1985  1/2 ton running on 7 cylinders for $1,000 I`d buy that and get by until cooler heads prevail.  But these are the same people that run a 1¢ Bitcoin to $60,000   ... I guess I`m not that smart.

With the price of corn, if you don`t have it on hand and you have livestock you either have to buy it or take your livestock to the salebarn regardless of their finished condition.  But $8 corn takes away incentive to feed hogs over 280 and cattle over 1500.    I still say feed goats, they don`t eat much and bring $3,50 $4/lb   🙂  

If you have a $1 million hog barn, you got to keep it full for the next 20 years to pay for it even if you`re losing money, cause if it`s empty, you`ll lose even more.   Hellofadeal.  

May had record frozen beef inventory and frozen pork supplies rose contra-seasonally  during May.

[sdholloway56]

I’m surprised gasoline demand remains quite strong at these prices.

Obviously some people have to drive to work and don’t have ride share or other transit options- but fewer than before the pandemic and WFH.

I have limited sympathy for people taking a totally optional road trip and whining about the price of gas as if the global oil market is some form of public utility set up for their convenience.

Next thing you know they’ll be demanding cheaper food!

[sdholloway56]

The ‘00s commodity boom prices were rather artificially inflated by a concerted effort to drive the $USD down and the resulting massive speculation.

I recall many people here were mad about that, right?

[BA Deere]

Weeeeell, I wouldn`t say the the Dollar was driven down to "help the farmers".... there were other "reasons".