To the bewilderment of many, economists ignore food and energy prices when considering inflation. Here’s why. Two years ago soybeans were $17.94/bushel because a drought sent prices to all-time highs. Today, due to outstanding weather, front-month soybeans are at $9.90/bushel. Similarly, today gasoline is 20% cheaper than in June! These volatile prices tell us about weather conditions and possible supply disruptions, neither of which give insight into future inflation trends.
Tag Archives: Soybeans
Agricultural Economics
Despite crippling drought, US food prices will rise little as only 15% of each food dollar is attributable to farm products. Thus, even a 100% rise in corn prices would lift the CPI by 1.5%. And if this drought is as bad as 1988, which cost $80 billion, GDP will fall by just 0.50%. In the short-run beef prices will fall as herds are culled due to high feed costs.
Corny Ag Prices
Farmland prices have doubled since ’06. The cost per acre in IA is now almost $7,000/acre up 32% since ’10. Inflation adjusted prices are higher now than in the late ‘70s which precipitated the farm bust of the 80s. Prices are high because corn and soybeans have doubled in price since ‘06 due to demand from China and corn-to-ethanol which takes more than 33% of all corn. Even TIAA-CREF has a $2.5 billion farmland portfolio.