Once again, there is discussion about food prices going up. This issue last surfaced when farm commodity prices hit record levels in the summer of 2008, and the high prices of corn, soybeans and wheat were blamed for increased prices at the grocery store. Because corn, soybeans and wheat are major ingredients in many of the grocery items we purchase, doesn’t it make sense that if their prices increase, the grocery products including these ingredients would also increase? Let’s take a deeper look at this.
Last year, in February of 2010, the price for corn that farmers could receive from a Peoria County elevator was around $3.50 a bushel. This year, the price of corn is closer to $6.50 per bushel. The price for a 60-pound bushel of soybeans last February was approximately $9; one year later, that same bushel of soybeans is nearly $14. Wheat has also seen a significant increase; last year’s February price was $4.50 a bushel, and one year later, it has increased to $8.50 a bushel.
These prices have increased by simple supply-and-demand economics. A lower world supply, combined with increased demand, has increased prices. Locally, several farmers saw quite a drastic reduction in corn yields with field-saturating rainfall, and therefore had less to sell. Are farmers selling their corn and soybeans at these high prices? Some of it, maybe, but not nearly all of it. Historically, prices looked good at $4 a bushel for corn in January of 2010, and there were thousands of bushels sold before the corn was even planted.
What about livestock prices? Cattle and hog prices have also seen an increase, although not quite as drastic. Hog prices have increased from roughly 45 cents a pound last February to 55 cents this February, while cattle prices have increased from 90 cents to $1.10 per pound.
So, the question is: just how much will the increase in the prices of corn, soybeans and wheat at the farm level affect the prices of the grocery items that have corn, soybeans and wheat in them as ingredients, such as bread, crackers, cookies, cakes, noodles, pastries, cereal, etc.?
Let’s take a box of cereal such as corn flakes, and a loaf of whole wheat bread. What is the value of the corn in corn flakes, and the wheat in a loaf of bread? If the box of cereal is 18 ounces, and the entire 18 ounces was corn, the value of corn in that 18-ounce box at the farm level went from seven cents ($3.50 a bushel) at 2010 prices to 13 cents ($6.50 a bushel) in 2011. (The corn in a 56-pound bushel will be enough for 50 18-ounce boxes of corn flakes). What about that loaf of bread? If it is 16 ounces, and the entire loaf is made of wheat, the value of that wheat went from 7½ cents ($4.50 a bushel) at 2010 prices to 14 cents ($8.50 a bushel) at 2011 prices. (The wheat in a 60-pound bushel will be enough to make 60 loaves of bread).
Yes, the price of the unprocessed farm ingredients in many grocery store products has doubled. But, as you can see, the raw farm ingredients are a very small portion of the price reflected at the retail level. At today’s prices, a $3 box of Corn Flakes would have 13 cents worth of corn, and a $3 loaf of bread would have 14 cents worth of wheat.
As far as meat, the price per pound at the farm level has increased approximately 10 cents a pound for pork and 20 cents a pound for beef. This equates to a 20-percent increase in prices, comparing February 2010 to February 2011. Pigs and cattle will yield roughly 50 percent in meat after processing. For instance, a 250-pound pig will yield 125 pounds of meat, and a 1,200-pound steer will yield 600 pounds of meat. If a farmer receives 50 cents a pound for a pig sold at the sale barn, the equivalent value of the meat is $1 per pound. The same applies to cattle. If the price for a steer is $1.10 a pound at the market, the farm value of the meat is actually $2.20 a pound.
Most of the cost in grocery products reflects the cost of processing, packaging, transportation, advertising and taxes—not the price that farmers are receiving for crops used in the ingredients. If you watch the price of oil, you will find that it more closely follows the price of grocery products with grains.
As a final thought, farmers are price takers, not price makers. Farmers do not set the prices of products you find in a grocery store. The crops that farmers grow and the livestock they raise are sold in a free market system, based on supply and demand. iBi
