Wednesday, August 24, 2016

Surplus Cheese and US Agricultural policy. Let's go to the graphs.

I don't see this surplus as a problem but an opportunity for more Queso dip!

The US government is buying 11 million pounds of cheese because no one else will
""There is way too much cheese in America, so the US Department of Agriculture is buying a massive amount of it. 
According to a release from the USDA, it will buy 11 million pounds — worth roughly $20 million by its estimate — and distribute it to food banks around the country."""
The US cheese market has had a significant oversupply problem for most of the year because foreign buyers have looked elsewhere for their dairy products as a result of the strong dollar. Before this slowdown in exports, many farmers had ramped up their production because of record-high prices."""
This situation presents another opportunity to "go to the graphs" to explain what is going on in the Market for Cheese.

Tuesday, August 23, 2016

"There is no profit in destruction***" said no media outlet ever. Louisiana Flood Edition...

***Frederic Bastiat.

Well, it has not happened yet, but wait for it...

Here is a satellite photo (from NYTimes) that shows "Louisiana at Night".  The bright white on the left shows the State as it normally is at night.  The one of the right shows it on August 15, 2016.

Notice the lack of electricity where it used to be plentiful?  Many areas have gone dark.  Devastation.

When damage is done to property, private or public, it has to be repaired or rebuilt. This will necessitate new/current purchases of goods and services.

This adds to Gross Domestic Product (GDP).  It looks like the economy is humming along.

But GDP accounting must include a subtraction to account for what was lost, right?  The added purchases are simply making us whole again, right?

Nope.  GDP includes only "new goods and services" purchased.

Now, businesses will sell less of some goods (demanded before the flood) and more of others (stuff to rebuild) so it could (not likely) come out even.

But you are likely to see a news report that suggests there is a "positive side" to this tragedy---employment and the buying of new stuff.  DON'T BE FOOLED!!

"""From which, by generalizing, we arrive at this unexpected conclusion: "Society loses the value of objects unnecessarily destroyed," and at this aphorism, which will make the hair of the protectionists stand on end: "To break, to destroy, to dissipate is not to encourage national employment," or more briefly: "Destruction is not profitable."""" Bastiat.

Wednesday, August 17, 2016

Market for Irish Cattle---Change in Quantity Supplied vs Change in Supply

One of the most frustrating things to teach AND learn in a basic microeconomics class is the difference between a change in Quantity Demanded and/or Supply and a change in Demand and/or Supply---whether we move along the respectived curve or the curve shifts entirely in one direction or the other.

This very short article from a website that reports on agricultural issues in Ireland provides a nice example on the supply side to illustrate the difference:
The number of prime cattle slaughtered at Department of Agriculture approved beef export plants has jumped 10% in the space of a week. 
Figures from the Department show that the throughput of young bulls, steers and heifers increased by just over 2,200 head last week compared to the week before. 
Towards the end of last week and into this week, factory buyers were willing to pay an extra 5c/kg on top of the base price in order to secure stock.And this move appears to have worked, as an additional 2,285 cattle were presented for slaughter during the week ending August 14.
Here are some slides that will help explain the difference. Hope it helps!

Monday, August 15, 2016

A supply and demand lesson with agriculture in one snapshot of a webpage...Oh, and I made some graphs too!

A supply and demand lesson with agriculture in one snapshot of a webpage (Morning Ag Clips)

Lower prices are NOT what farmers want to hear!

While not an exhaustive list, there are basically 3 things that can happen with Agricultural policy in the US that can affect the market for corn assuming the condition presented above---(1) buy up the surplus or (2) use subsidies or (3) do nothing.

I put together some slides to illustrate how each policy may affect the market.

Friday, August 5, 2016

Adjusting for inflation, how have 4 major Chicken Fast Food Restaurants fared since 1991?

I saw the graphic below on a twitter account I follow from Nations Restaurant News.

The numbers you see are in "millions"--put 6 zeroes at the end of the numbers (in front of the decimal) to get the full value.

It shows sales figures for 4 major chicken chains in 1992 (blue column is 1991 sales figures).  These numbers are interesting as they stand, I suppose, but what do they represent in more current dollars?

I used the column in BLUE as it is a firm dollar amount from the prior year--1991.  I used the Bureau of Labor Statistics calculator to adjust the numbers into 2014 dollars.  Those numbers are in the box "2014 Dollars (Inflation Adjusted)".

The RED arrows point to the inflation adjusted sales figure. Example: For KFC, sales of $3,200,000,000 ($3.2 Billion dollars) in 1991 would be equivalent to $5,562,000,000 ($5.525 Billion dollars) in 2014 dollars.

I used 2014 because from HERE I was able to find the latest yearly sales figures for these 4 companies.  Those numbers are in the box "2014 Actual Sales".

Now, this is the fun part!  Look at the differences that occurred over time.

Actual Total Sales for all 4 chains are 71% higher than the inflation adjusted figure. It is good to be in the chicken business, right?

What other observations can you make about these 4 companies?

Wednesday, August 3, 2016

UK minimum wage pre and post-Brexit. How has it changed?

There is always a debate about the appropriate level at which the minimum wage should be set (or even if there should be one).

International comparisons are often used to see how other countries approach the use of it as a policy tool.

Here is how the U.K. deals with the issue. They have what is called a "tier" approach---a different minimum wage for different age groups and/or skill levels.

Of course the wages are in Sterling Pound, the currency of the UK. We know with "Brexit" the value of the Pound has taken a hit over the course of the last month or so.

For the purposes of understanding how making cross border comparisons can be tricky, let's put the a above numbers in the current exchange rate, exchange rate before Brexit and Purchasing Power Parity (PPP) exchange rate.

Before the effects of Brexit hit the market, the Pound was trading at roughly $1.45. So if you take the above wage rates and multiply them by $1.45 that will give you the US dollar value of the minimum wage for that particular age/skill group.

For 25 and over: $10.44.  For 21-24: $9.72.  For 18-20: $7.69. For under 18: $5.61. Apprentice: $4.79

Today, the exchange rate is 1 Pound = $1.33. Again, take the numbers in the chart above and multiply by $1.33.

For 25 and over: $9.58.  For 21-24: $8.91.  For 18-20: $7.04. For under 18: $5.15. Apprentice: $4.39.

Quite a difference!  The only thing that changed is the exchange rate between the Dollar and the Pound in a relatively short period of time.  You can see how using current exchange rates can present a misleading picture when presented in current exchange rates.

Fortunately we have a better, but not necessarily perfect, way to show the differences in currency exchange rates.  It is called Purchasing Power Parity (PPP).  PPP is the economists preferred exchange rate to use when making international comparisons because it takes country specific prices/price level into consideration.

In many cases the PPP exchange rate varies drastically in comparison to market exchange rates.

In the case of the UK, data from the OECD show the PPP rate to be almost identical (1 cent less) to the pre-Brexit market exchange rate: $.144 (See the data here).  The numbers I calculated above for "pre-Brexit" will only be slightly less given the PPP exchange rate.

The US has minimum wage has some exceptions but for the most part, regardless of age and/or skill level, it is a blanket $7.25 per hour.  You can see how this falls into the UK policy scheme.

So, when someone quotes a foreign country's minimum wage in dollars it is critical to know (1) if that it is in current dollars how has that currency faired lately in the foreign exchange market and (2) is that in market dollars or in PPP?

Then judge by the look on their face if they are as informed as you or not.  :)

Sunday, July 31, 2016

Cherry-picking the Cherry Pickers. Should this grower be angry?

A bit of a internet storm over a photo a Michigan cherry grower posted to Facebook.

 A Michigan tart cherry farmer is leaving 14% of his crop this year to rot on the ground to comply with an industry marketing agreement intended to keep cherry prices stable. And he's not happy about it.
A frustrated Marc Santucci, who grows about 30 acres of cherries on his 80-acre Traverse City farm, put a photo of the dumped cherries, thick on the ground, on Facebook Tuesday — and the photo had been shared nearly 38,000 times as of Thursday afternoon. (From USA TODAY)

He is lamenting the fact that he is required to destroy a portion of his cherry crop in order to meet supply requirements of the Cherry Industry Administrative Board.  His method of disposal was to dump it on the ground (a common way).

The Cherry Board is charged with stabilizing the price growers receive for their cherry harvest.  The main tool to accomplish this is controlling the supply of cherries that make it to market.

Here is a series of slides I created to explain in Supply and Demand terms what I believe is going on.


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