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Spiking Corn Prices Could Be Linked to Climate Change

Spiking Corn Prices Could Be Linked to Climate Change

New study claims that climate change and corn prices could be linked

Thinkstock/Ingram Publishing

Corn

According to a new study published in the Nature Climate Change journal this month, there could be a significant correlation between predicted spikes in corn prices over the next 30 years and predicted patterns of climate change.

Using recent commodity price inflation as a jumping-off point, researchers from Stanford and Purdue show that climate change may affect the growth and harvesting of corn crops much more than other factors, such as oil prices and energy policy.

The researchers even suggest that the nation's major corn producers may have to move further north, as far as the Canadian border, to find shelter from the rising temperatures. The study does not include predictions for future prices; it focuses rather on the information gathered with regards to volatility of crop yields based on predicted climate change patterns.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.


Edward Lotterman: What’s causing volatile prices in commodities?

Prices for basic commodities including farm crops, ores and metals or fuels such as crude oil and its derivatives, have been rising rapidly in recent months. What is causing this? How will it affect our overall economy or our own households? Readers posed these questions in response to the May 16 column on inflation.

Surging input prices eventually do affect everyone. They also involve some interesting basic economic insights, so an explanation may be useful.

Just reading headlines one can know how widespread price increases are. Corn prices for southern Minnesota are about $6.70 per bushel compared to about $3.30 a year ago. Soybeans are about $15 versus $8.40 this month last year.

Iron ore traded internationally has doubled from $84 per metric ton to $178. This metric is a weighted average of various types of ores. The taconite pellets produced in Minnesota are higher value than this average, but their prices have increased by the same proportion. Finished aluminum is up 60 percent, copper 85 percent and hot-rolled steel 42 percent. The thinner, finer-finish cold-rolled steel used in appliances and
automobiles increased 30 percent in the past year.

West Texas crude oil is $66 this week. The last week of May 2020, it was $34. Thus the national average price of gasoline is up 34 percent and diesel fuel even more over 12 months ago.

Wow! Prices are just running rampant! General price inflation, already up a bit, is set to just explode! Are we in for an economy like the 1970s, or even worse?

No, not at all. Yes, prices of all sorts of inputs are up sharply from 12 months ago. But that was a low point for our nation and the world slipping into a COVID-caused recession. If you look at long-term price patterns, you get a better picture.

Take the past 15 years — from 2006 — the last one before the global commodities and U.S. financial derivative bubbles burst. For reference, the general Consumer Price Index rose a cumulative 38 percent over that span.

Start with gasoline, important in the budget of most households. Since May 2006, the highest weekly average was $4.76, the lowest $1.98 and the average $3.13. Nationally we are a dime above that now. Minnesota, as usual, is below the national average.

Corn is key to the economy of many Minnesota households, whether in production, transport or processing. In world trade, the March price for corn was $4.97 per bushel and rising. The highest over the 15-year span was $8.46, the lowest $3.28 and the average $4.96. For global soybean trade, these were $10.72, $5.63 and $16.76 compared to $13.90 in March, 2021.

In iron ore, also important to Minnesota, we are in the high end of the range. The low of $33 per metric ton was in 2006. The high of $187 was in 2011, when Minnesota taconite pellets were being shipped by rail all the way to Prince Rupert, British Columbia, an expensive proposition, for shipment to China. The 15-year average was $92.

One could go on through a whole list of primary raw materials or intermediate goods like sheet steel or aluminum ingots. Prices indeed are up from the deep rut a year ago and well above the lowest points over the past 15 years. But most are just slightly above these longer-run averages and well below the highs hit in episodic price spikes. So yes, prices are rising, but no, they are not “out of control.”

The ranges of prices cited prompt a second question: Why do prices of such commodities yo-yo so widely? We don’t see similar swings in prices for new cars, movie tickets, televisions, books or rebuilt alternators. What gives with inputs that is different than “final goods” households buy?

First of all, agricultural products are subject to the vagaries of weather. Part of the recent increases for corn are due to drought in key areas of Argentina just as many U.S. corn-growing areas remain drier than usual.

Moreover, crops are seasonal. A clothing factory may add workers or shifts if demand rises and cut them when demand lessens. But corn and soybeans in the major producing countries gets planted once a year. After late May, corn and soy prices could go through the roof or drop into the basement, but farmers can do nothing to change the 2021 crop.

Furthermore, total land is fixed. Over longer periods, some can be brought into crop production or turned back into grasslands or forests. Many acres in the Deep South that grew cotton for a century now grow pine trees. Cropland can be irrigated or drained. But this all takes time.

For livestock products, the production of which hinges on breeding animals, ramping up takes even longer. So beef and pork have well established price cycles determined by the breeding parameters of cattle and hogs.

Mines have similarly long expansion lags. Yes, some closed copper mines in Montana or Chile can be reopened in a matter of months if prices spike. But the physical opening of a new open-pit copper or iron mine takes years even in poor countries where environmental regulations are minimal and longer in high-income countries.

Once you spent a billion dollars opening a new copper mine, you have a lot of debt to service relative to labor, diesel fuel and explosives, so even if prices fall, you keep operating. Ditto for a steel mill, producing oil wells or hog-finishing barns in Minnesota. As long as you are getting anything above that needed to cover operating costs, it is better to keep running rather than shutting down and having no revenue to pay fixed costs.

There also are factors of household buying behavior on the consumption side that contribute to big cyclical price swings for some goods, but not for others. However, exploring these must wait for a future column.