Over the years I have come to appreciate the attributes of many people. One of my favorites is a gentleman, I’ll call him Mike for short. Mike is never short when it comes to delivering some sage advice, a laugh, and without a doubt, a complaint.
In his mind, Mike is famous for his wealth of knowledge of all things agricultural. I called him out on this the other day, after he had delivered a diatribe of inarticulate complaints about the state of agriculture and commodity prices in general. His rant went something like this, “You know Stuart, it’s going to be dry in two weeks if we don’t get some rain. I sold some lightweights the other day and I went to buy back, but have you seen those prices? If this grass doesn’t quit growing, I won’t be able to give away my hay, and by the way, it’s a shame my corn looks so good at the same time everyone else’s does. It isn’t worth near what it should be.”
I listened to this malarkey for a bit longer and finally had enough. “Mike,” I said, “Let me get this straight. We have had 10 inches of rain spread out between the middle of May and the first of July, you sold your steers at an all-time record price, you have plenty of hay set back for the winter, as well as your neighbors, and your corn looks the best it has in at least seven years? Quit your whining. Besides, you still have your dog that likes you and your grandkids still believe in Santa Claus.”
I certainly don’t claim to have the wisdom of Mike, but what he was describing to me was a classic principal of supply and demand as it relates to relative price. He knew this and you know this, but he just likes to complain.
Bumper crops and high inventories lead to a reduction in relative price as long as demand is held constant, and lower cattle numbers and constant demand for beef leads to price increases, all other things being constant. What I wanted to say to Mike is that you can have it both ways, but it takes ingenuity, creativity and flexibility – three things no one has accused Mike of possessing.
You might have noticed the one variable that wasn’t changed in the preceding analysis was demand. For those economic concepts to hold true, you must hold demand constant. If it fluctuates up or down, the prices the market will bear will change accordingly.
Driving demand for domestically produced agricultural products should have been at the top of Mike’s mind. This increasing demand could be through the free market development of alternative uses, increasing export demand, and the development of new products, which consumers want. There are a number of examples throughout history that have temporarily increased demand for specific products. The problem, though, is that the increase in demand typically is temporary. At other times, demand may not subside, but, supply catches up and the cycle must begin again.
Perpetuating increased demand for commodities is not an easy task. It’s hard enough to maintain constant demand, but increasing the demand is very difficult, time-consuming and requires a little luck.
