It only makes sense not to plant if you think you won't be able to make up the cost of the fertilizer when you sell your crop. If there are shortages, food prices will go through the roof. Farmers who decide not to plant are implicitly predicting that there will not be shortages.
Or they simply are unwilling to bear the risk. To them, it's a risk, the prices the know are the prices they expect and it would be a gamble to predict otherwise.
If there is anything I notice it is that people and are absolutely terrible at predicting future demand.
Isn't futures designed specifically to allow for this kind of hedging? eg. everybody thinks that food prices are going to the moon next harvest, but farmers don't want to pay the risk, so futures allow farmers to lock in prices now and not have to worry about a price crash come harvest time.
I was precisely thinking about futures when typing the post. That is why I did not say "the economy" and said people instead. But I do not understand them so I tried to steer away from them.
Truth be told... I don't know. I wonder how futures look right now. I wonder how many futures are being traded in the agricultural domain, I wonder what is their actual, functional impact on the market. I simply admit my ignorance here.
I think there's a yield curve based on the amount of fertilizer added to the crop. I saw on one video that a "normal" fertilizer application on his crop yields 2x the amount vs no fertilizer. The yield change is a non-linear curve based on the amount of fertilizer application.
So farmer will have to estimate what the price will be at the time of harvest and then optimize this curve.
The only modifier is that there's usually social outcry when prices rise in response to a shortage and demands for the government to step in and fix prices with force. Sadly that tendency means even if a food shortage is perfectly predictable there's no incentive to prepare for it. Obviously prices can rise somewhat without being fixed (as has been happening in recent months) but there's a limit and in the case of widespread food shortages that limit may be reached.
Did the price of meat double over the past year? You have a source for this? All my googling of "meat price over time" suggests the price of meat did not double in the last year. Or even the last 10 years.
The same pack of chicken wings that was 4 dollars last year is now over 8 dollars. You can publish whatever commodity price trends you want but it has almost 0 to do with end price.
1. Your initial claim was "the price of meat doubled over the past year", not "8 pack whole wing price doubled"
2. If you don't mind me asking, what was the before/after price of said chicken wings, in unit terms? Some plausible reasons that might contribute the doubling you see, but not be representative of overall meat price trends include:
a. you misremembered (eg. $4.99 -> $4, $7.43 -> $8)
b. you were comparing sale vs non-sale prices
c. you buy some really boutique chicken wings that are subject to bigger price fluctuations than the typical wings that everybody else and the USDA measure
d. you were comparing regular chicken wings with boutique chicken wings
Otherwise, it seems strange for a grocery store to go from average chicken prices, to 66% above average (2x / 1.2x) in the span of a year.
Hum... What the thread describes sounds exactly like a shortage caused by price fixing. Except that the price fixing didn't even happen yet, so people are beforehand betting either on it or on there being enough stockpiling to absorb the full shock.
And who knows? The war isn't a month old yet, and I have no idea how long it takes to put some basic fertilizer manufacturing online. Also, most land can produce a crop or two without extra fertilizer with very little impact.
I think the biggest issue there would be financing. Most fertilizer terms are COD but you don't realize any cash in farming until you deliver the crop (and for some crops, payment terms aren't great).
I think there could be a situation where individual farmers just can't finance enough fertilizer. The whole business runs on cash flow and it's tough in normal times.
That does seem logical assuming farmers are acting perfectly rational. I wonder if that's the case though given how people have been responding to the events of the past two years.
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Somebody replied with:
Which...seems like quite solid logic.
Or they simply are unwilling to bear the risk. To them, it's a risk, the prices the know are the prices they expect and it would be a gamble to predict otherwise.
If there is anything I notice it is that people and are absolutely terrible at predicting future demand.
Isn't futures designed specifically to allow for this kind of hedging? eg. everybody thinks that food prices are going to the moon next harvest, but farmers don't want to pay the risk, so futures allow farmers to lock in prices now and not have to worry about a price crash come harvest time.
I was precisely thinking about futures when typing the post. That is why I did not say "the economy" and said people instead. But I do not understand them so I tried to steer away from them.
Truth be told... I don't know. I wonder how futures look right now. I wonder how many futures are being traded in the agricultural domain, I wonder what is their actual, functional impact on the market. I simply admit my ignorance here.
I think there's a yield curve based on the amount of fertilizer added to the crop. I saw on one video that a "normal" fertilizer application on his crop yields 2x the amount vs no fertilizer. The yield change is a non-linear curve based on the amount of fertilizer application.
So farmer will have to estimate what the price will be at the time of harvest and then optimize this curve.
(edit here's the video):
https://www.youtube.com/watch?v=-mIBz5r29nw
The only modifier is that there's usually social outcry when prices rise in response to a shortage and demands for the government to step in and fix prices with force. Sadly that tendency means even if a food shortage is perfectly predictable there's no incentive to prepare for it. Obviously prices can rise somewhat without being fixed (as has been happening in recent months) but there's a limit and in the case of widespread food shortages that limit may be reached.
I’d expect subsidies to appear a thousand times over before price controls in the US.
There's de facto price controls on drinking water during a catastrophe or at least calls for them. That's what I was thinking of.
Where was this protective failsafe when the price of meat doubled over the past year?
Did the price of meat double over the past year? You have a source for this? All my googling of "meat price over time" suggests the price of meat did not double in the last year. Or even the last 10 years.
No.
Just by eyeballing futures prices:
Cattle is up ~21% since pre-pandemic https://www.tradingview.com/chart/?symbol=CME%3ALE1!
Lean hog is up 53% since pre-pandemic https://www.tradingview.com/chart/?symbol=CME%3AHE1!
Also, looking at CPI figures, the "Meats, Poultry, Fish, and Eggs" is only up 19% since pre-pandemic levels.
The same pack of chicken wings that was 4 dollars last year is now over 8 dollars. You can publish whatever commodity price trends you want but it has almost 0 to do with end price.
How about retail price data published by USDA?
https://www.ers.usda.gov/webdocs/DataFiles/52160/cuts.xls?v=...
Still does not change the price of an 8 pack whole wing at the grocer's till.
1. Your initial claim was "the price of meat doubled over the past year", not "8 pack whole wing price doubled"
2. If you don't mind me asking, what was the before/after price of said chicken wings, in unit terms? Some plausible reasons that might contribute the doubling you see, but not be representative of overall meat price trends include:
a. you misremembered (eg. $4.99 -> $4, $7.43 -> $8)
b. you were comparing sale vs non-sale prices
c. you buy some really boutique chicken wings that are subject to bigger price fluctuations than the typical wings that everybody else and the USDA measure
d. you were comparing regular chicken wings with boutique chicken wings
Otherwise, it seems strange for a grocery store to go from average chicken prices, to 66% above average (2x / 1.2x) in the span of a year.
Hum... What the thread describes sounds exactly like a shortage caused by price fixing. Except that the price fixing didn't even happen yet, so people are beforehand betting either on it or on there being enough stockpiling to absorb the full shock.
And who knows? The war isn't a month old yet, and I have no idea how long it takes to put some basic fertilizer manufacturing online. Also, most land can produce a crop or two without extra fertilizer with very little impact.
I think the biggest issue there would be financing. Most fertilizer terms are COD but you don't realize any cash in farming until you deliver the crop (and for some crops, payment terms aren't great).
I think there could be a situation where individual farmers just can't finance enough fertilizer. The whole business runs on cash flow and it's tough in normal times.
That does seem logical assuming farmers are acting perfectly rational. I wonder if that's the case though given how people have been responding to the events of the past two years.