Saturday, March 31, 2012

Nice article illustrating Opportunity Costs, the PPF and Supply and Demand in Agricultural Markets...

Farmers’ corn push to hit soyabeans (The Financial Times)

Food commodity prices rose after US farmers signalled plans to sow the most corn in 75 years, taking away land from soyabeans, which are facing a fall in supplies due to droughts in South America.
A US government survey of 84,500 farm operators indicated they would plant 95.9m acres (38.4m hectares) with corn this spring, 4 per cent more than last year, the most since 1937 and above expectations. Plantings of soyabeans, often rotated with corn, would fall 1 per cent from last year to 73.9m acres (29.6m hectares), with declines in such fertile states as Iowa, Missouri and Nebraska.

The US is the world’s leading exporter of corn and vies with Brazil in soyabean exports, so decisions made there are vital to global food markets. A growing world population and rising incomes in emerging economies have driven greater appetites for the crops, used in products from pig feed to vegetable oil.

Oilseed traders are increasingly on edge after a severe drought hurt the current soyabean crop in South America. The US Department of Agriculture’s annual Prospective Plantings report sent related canola and rapeseed futures markets higher in Canada and Europe. China buys three of every five bushels of the world’s soyabean imports.

“This is the annus horribilis for South American grain production. La NiƱa hit all the wrong places. For soyabeans, it makes the US all the more important,” said Nick Higgins, commodity analyst at Rabobank, the Dutch bank that is one of the biggest lenders to the agribusiness industry.

The US also said stocks of domestic corn left over from last year’s harvest totalled 6bn bushels on March 1, down 8 per cent from a year ago. The number was slightly lower than anticipated and suggested very low inventories before this year’s harvest begins.

CBOT May corn, which reflects the old crop, rose 6.6 per cent to $6.44 a bushel in Chicago. December corn gained just 3.1 per cent.

CBOT May soyabeans added 3.5 per cent to reach $14.03 a bushel, while soyabeans for November delivery rose 4.1 per cent. ICE May canola rose 3.2 per cent to C$622.50 a tonne in Winnipeg, touching the highest price since the global food crisis of 2007-08.

Corn peaked at a record of almost $8 a bushel last June as growers sought to meet demand from livestock producers and the US ethanol industry. If farmers follow through with planting intentions and yields are good, this year’s crop could break records, helping ease concerns about food prices.
The USDA also said that farmers intended to plant 13.2m acres of cotton, 11 per cent below last year.
Wheat acres are growing 3 per cent from a year ago to 55.9m acres.

Excellent article on the "Pizza by the Slice" price war in NYC. Illustrates perfect competition, Substitution Effect on Demand, and Elasticity of Demand. A gold mine for a basic Economics class...

Nice article on the "Pizza by-the-slice price War" taking place in a NY City neighborhood.  Competition is good for the consumer. It forces the producer to offer the best product for the lowest price. It also requires the producers of subsitutes to look at their pricing. 

Sandwich shops, and other nearby establishments offering quick meals,  may have to lower their prices to keep relative prices (Substitution Effect) between their product and pizza more competitive so customer are less likely to move to the less expensive alternative.  Of course they have to consider the Elasticity of Demand for their food as well...

In Manhattan Pizza War, Price of Slice Keeps Dropping

In the amped-up war of commerce and 75-cent pizza on the Avenue of the Americas in Midtown, a perilous moment is approaching. Circumstances suggest that ravenous New Yorkers might soon witness 50-cent pizza, 25-cent pizza or, yes, free pizza.

It is that caustic. Neither side is willing to yield an inch — or a cent. Escalation seems imminent.
As so often happens in twisty New York stories involving wallets and food choices, who is being picked on and who is attacking vary in the telling. Convenient facts get omitted from the narrative.
It’s best to start at $1.50 a slice.

That is what pizza was selling for about a year ago at a family business that is a combination vegetarian Indian restaurant, candy store and pizza parlor on Avenue of the Americas (also known as Sixth Avenue), between 37th and 38th Streets. It is called Bombay Fast Food/6 Ave. Pizza.
Then a Joey Pepperoni’s Pizza opened near the corner of 39th and Avenue of the Americas, offering pizza for $1, a price that has in recent years been favored by a number of New York pizza establishments.

So Bombay/6 Ave. Pizza shrank its price to $1 too.

All was good until last October, when a third player entered the drama.

A 2 Bros. Pizza, part of an enlarging New York chain of 11 shops that sell slices for a dollar, opened virtually next door to Bombay/6 Ave. Pizza. The only separation is a stairwell that leads up to a barbershop and hair salon.

Price stability at a buck all around persisted until eight days ago, when both 2 Bros. and Bombay/6 Ave. Pizza began selling pizza for the eye-catching price of 75 cents a slice, tax included — three slender quarters.

Friday, March 30, 2012

Nice graph showing dollar amount of currencies traded in the Foreign Exchange Market---Impress your econ teacher or your Professor!!

I knew lots of currencies are traded in the Foreign Exchange Market on a daily basis, but I did not know how much in dollar terms. This graph (HT: The Conversable Economist) gives a pretty good idea--in the $4 Trillion dollar range.  Nice for teachers to show students and great for students who want to impress their economics teacher!! :
Source: The Conversable Economist

Wednesday, March 28, 2012

China is now our 3rd largest EXPORT market. Nice interactive graphic showing each US States share of those exports. This is a growing market for US goods and services. We can either fight it or benefit from it.

If economic expansion does not cause China's political system to implode, the opportunities to do business there are in their infant stages. US companies and entrepreneurs must get on board with looking to "The East" for opportunities. Students should also be aware of this and figure out how to take advantage of it as well. It is a growth area where there seem to be few.

Go HERE to the US China Business Council website and you will see the interactive graphic below.  Click on your state and see an overview of exports to China from that state.

 Keep in mind the percentage change will be dramatic because exports to China started at a low base number---exports to China on a larger scale are a relativly new thing.  None the less, China is now are 3rd largest export market, behind Canada and Mexico. 

Source: USCHINA Business Council

HT: Carpe Diem for link

Tuesday, March 27, 2012

The "Opportunity Cost" of getting rid of "Pink Slime"---No one seems to be defending this product. Guess I will give it a shot...

On employment and environmental grounds, it may be worth re-considering our aversion to this product.

One persons gross Pink Slime is another persons paycheck...It is worth noting that at least 650 jobs have been lost in the near term and I am sure more will happen down the supply chain.  Not sure where those people will end up, other than the unemployment line. That is one big negative created by this issue.

It is also interesting to note another side effect.  The filler will presumably have to be replaced by "real meat". The article notes that an additional 1.5 million head of cattle PER YEAR will be needed fill the gap that Pink Slime filled.  That is quite a short term increase in demand that cannot be filled in the near term---the cows gotta be born and grow up!!.

This will create conditions for higher beef prices, higher cattle feed prices, more food commodities diverted to beef production resulting in higher prices for OTHER foods, environmental problems (more water and other resources consumed) with that much increase in beef production, etc, etc, etc.  I am SURE I am missing some other "unintended consequences". Are we ready for higher prices in the food supply?

Weighing the costs (there are no known health problems associated with "Pink Slime"--other than the "gives me the willies" feeling) and benefits of Pink Slime, it is worth it to get this product off the market?  What do you think? 

Below is the article I base the above comments on.  Worth a read...

Pink Slime Production is Suspended at Plants
A major producer of a ground-beef additive said it is closing three plants after a growing number of supermarkets dropped the product in recent weeks. 
Beef Products Inc. said Monday its decision to suspend production of a ground-beef filler at plants in Amarillo, Texas; Garden City, Kan.; and Waterloo, Iowa, would affect more than 650 employees. Its plant in Dakota Dunes, S.D., where the filler is also produced, will continue operating.
The decision came as social networks teemed with concerns about the product, nicknamed "pink slime" because of its appearance.
"The derogatory term has trumped all science, all facts, all history," said Rich Jochum, corporate administrator for Beef Products, which took out a full-page advertisement last week in The Wall Street Journal defending its product. The company didn't indicate for how long production of the filler would be suspended.

Sunday, March 25, 2012

When oil prices rise the first cry from politicians and other scoundrels is "IT'S THE SPECULATORS!!". But is it TRUE?

This research paper surveys  published papers on the topic of speculation in the oil trading commodity markets. Speculation is the "knee-jerk" response of politicians when it comes to increases in oil prices. (Is it not funny that speculation does not get blamed for LOWER oil prices??) Here is the Abstract from the paper:
"A popular view is that the surge in the price of oil during 2003-08 cannot be explained by economic fundamentals, but was caused by the increased financialization of oil futures markets, which in turn allowed speculation to become a major determinant of the spot price of oil. This interpretation has been driving policy efforts to regulate oil futures markets. This survey reviews the evidence supporting this view. We identify six strands in the literature corresponding to different empirical methodologies and discuss to what extent each approach sheds light on the role of speculation. We find that the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003. Instead, there is strong evidence that the co-movement between spot and futures prices reflects common economic fundamentals rather than the financialization of oil futures markets."
 Find paper HERE.  (HT: Econobrowser for link)

Rock meet Hard Place: If young adults left home the economy would get better. Can't leave home because the economy is not better. How do we break this deadlock??

The number of "children" (young adults) living with their parents for longer periods of time has increased in the last 10 years, and has accelerated in the last 4 years. Certainly understandable with the severity of the recent recession.
""This generation of young adults has sometimes been labeled the “boomerang generation” for its proclivity to move out of the family home for a time and then boomerang right back. The Great Recession seems to have accelerated this tendency. The Pew Research survey found that among all adults ages 18 to 34, 24% moved back in with their parents in recent years after living on their own because of economic conditions."" (Pew Research)
Source: The Economix
However, surveys from The Pew Center showed an increasing number of these young adults (and I assume the parents) are ok with this trend:

78%: Percent of 25-34 year olds who have lived with their parents and are satisfied with the arrangement.

This puts our recovery in between a rock and a hard place.  If a good portion of these young adults were to leave home and form their own households it would create demand for lots of goods and services. That would be good for the economy.

But, presumably, they are not leaving

Leave home and the economy will get better faster. Can't leave home because the economy is not producing jobs in the quantity and quality needed. 

Rock meet Hard Place....

Baseball Fans: A little on the business side of the game---Nice chart showing each teams Debt to Equity Ratio. Easy question: Who has the most equity and smallest debt? Hint, it is the same team.

Notice the Key: The BLUE bar is the teams Debt. The RED bar is Equity, or in laymans terms, the portion that is "Free and Clear" owership of the team for the franchise owners.

Notice the tiny sliver of Blue  and the large chunk of Red for the Yankees. Very unbalanced and gives the Yankees a competitive edge over just about everyone else.  Very little debt to finance and lots of equity they can leverage to "buy" the best talent on a consistent basis.

Does this guarantee a "winner"? No, but it certainly gives them a better chance to win every year, whereas many other teams have a "one and done" (sometimes for decades) shot at winning a World Series.

Source: EconPic

Nice example of Entreprenuership and using technology to solve a market problem. See a need, meet that need.

Nice example of how entrepreneurship can create an opportunity for one person to solve a problem for another.  However, it is not enough just to come up with the idea or solution. You must doggedly pursue it, as long as it has merits.

"“energy and persistence conquers all things”--Ben Franklin

This Man Turned Small Business Headaches Into An Opportunity
Nearly a decade ago, Eric Remer had a big idea for a new business.
He noticed that small businesses were suffering because they simply couldn't efficiently get their customers to pay them on time. Most of the existing payment processing options were geared toward larger businesses and the small, family-owned ones couldn't keep track of everyone who owed them money.
"Small business owners don't typically have the time or the resources to follow up with unpaid invoices," Remer told us. "Maybe a while ago that would be okay, but in today's economy, it's definitely not."
So Remer decided to launch PaySimple. It would be a platform that included features, such as recurring billing, electronic invoicing and telephone payments. And customers would be able to choose what payment option works best for them, whether that be auto-recurring billing, electronic check processing or direct debit. If the business didn't have a web site—and they often did not— PaySimple would create one for them.
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