Commodity price swings don't change what food costs.

Commodity Prices Are Amazingly Irrelevant

Commodity Prices Are Amazingly Irrelevant

A blog about business and economics.
May 3 2013 10:51 AM

Commodity Prices Amazingly Irrelevant to What Food Actually Costs


The U.S. Department of Agriculture's Economic Research Service seems to have revamped its website relatively recently, and it's full of exciting data. You may notice that normal data sets are always talking about "non-farm payrolls" and productivity in the "non-farm business sector", so it's to USDA ERS that you have to go for the farm goodness.

This chart, which I thought was great, shows that farm prices don't have much impact on the price of food. Now obviously it can't be that there's no impact. But food prices as measured by the CPI show a nice steady inflationary trend. The field price of crops, by contrast, swings around insanely like the stock market. ERS' explanation for this is that "costs for marketing inputs such as packaging, processing, and transportation mitigate commodity price volatility on supermarket shelves and restaurant menus," which I suppose could be the answer. Other possibilities are that there's a fair amount of hedging in derivatives markets going on somewhere along the supply chain that smoothes things out. Alternatively, actual profit margins for someone may swing a lot.

What I mainly see this as is an illustration of the basic point that some prices in the economy are much stickier than others. You also see that truly flexible prices—like the spot prices for oil and primary agricultural commodities—are really very volatile. An economy in which all prices showed that kind of flexibility would probably be overwhelming to live in. Normal people simpy don't have the time to adjust to swings of that speed and pace.