Literally and figuratively the butter spread is getting wider. See how that affects trade flows.

The price of butter has surged in recent days as well as recent months. Here is a graph I created showing the price of butter in the US and in world markets.  The prices are per pound based on a  metric ton (2204.62 lbs) so this is the price at production for wholesale sale, NOT RETAIL (the price you see at the store).

The world prices since 2/19/2013 are in RED and the US price is in BLUE.

Notice, of the most part, world prices are consisently above the US price but a crossover occurs between March 19th and April 19 of 2014.  Then there is a significant diverence where the US price quickly outpaces the world price.

As of today (9/15/2015) the US price is at $3.00 lbs and the world price is about $1.25 (Source) so on the graph the RED world price line end point is the same but the US red line extends up to the $3.00 mark.  The spread is even wider than what appears on the graph!

Source: Haywardeconblog. Using historical data from HERE and HERE

This gives me an opportunity to do a lesson on international trade to show what happens in markets when the world price of a good is differnt from the domestic price and how trade flows might be affected.

US becomes a Net Exporter of Petroleum products for the first time in 62 years!! Is this a good thing? Nice new graphic showing the cause...

This caught me by surprise. The US, for the first time in 62 years, has become a net EXPORTER of petroleum and petroleum based products.  Gasoline and diesel fuels (for cars and trucks) lead the way.
 
The following graph may help explain some of the reason.  It shows a leveling-off of gasoline supplied in the US starting in about 2005 and then declined in 2007-08 (recession started).

Source: EIA

However, this does not mean that  the production of gasoline has decreased.  While demand is soft in the US, many other economys in the world are growing and have an increased demand for gasoline.  This graph shows the production of gasoline. 

Notice how production varies in the short term, but if I am reading the trend line correctly, it has increased in the past year.  Use your imagination and put these three graphics together---A declining supply of gasoline in the US market, an increasing supply of gasoline produced in the US = export of the difference---its gotta go somewhere...

From the WSJ:

""U.S. customers have been pulling back in part because an anemic economic recovery has left millions still looking for work. In August, U.S. drivers burned 7.7% less gasoline than four years earlier, when gasoline usage peaked...

But U.S. drivers aren't seeing much benefit in the form of lower prices because refineries on the Gulf Coast are shipping much of their output to places where demand is strong, keeping prices high....

Mexico and Brazil were major consumers of U.S. exports, according to the September data, while the Netherlands—home to key European ports —and Singapore also were significant net importers.

Argentina and Peru are now net importers from the U.S. For the next year or two, "the economies in Latin America will be growing faster than in the U.S. and the trend of increasing exports should continue," says Daniel Vizel, U.S. head of oil trading for Macquarie Group Ltd.

Singapore's net imports from the U.S. roughly quadrupled in the past five years, while Mexico's rose by about two-thirds. Mexico, in particular, is having trouble keeping pace with gasoline demand and buys about 60% of gasoline exports from the U.S...;""

"The Rent is too Damn High!" Actually it is import taxes...Would YOU do this to your car to avoid paying the tax?

Ukrainians cut cars in half to reduce import tax at customs (HT: Carpe Diem)

""Today I received some tax saving wisdom from a taxi driver in Ukraine. He told me that people who import cars to Ukraine sometimes cut the car in two separate pieces and carry it through the customs this way. By doing this, they save a fortune on import tax. A car carried in two pieces is seen as spare parts and therefore is taxed at a much lower rate than a normal car.""

Source of photos HERE

Electric Vehicles are NOT the answer to energy independence...Why does this have to be so hard???

Resources are not unlimited---this forms the foundation for the definition of economics.  Essential natural resources ("Rare Earth Minerals") used in the manufacture of electric cars come primarily from mines in China. The more electric vehicles we produce the more dependent we become on China for a critical element.  We move to these vehicles to escape dependency from one commodity (oil) and find ourselves captive to another...How come things cannot be easy...

The Rare-Earth Crisis

"...One argument I’ve heard is “national security,” the idea being that electric vehicles would make the United States less dependent on imported oil. Be careful what you wish for, however, because if electric cars become a mainstay, we may be trading one dependence for another that is even more troubling. Ninety-five percent of the world’s output of rare-earth metals today comes from one country: China. By some estimates, demand will outstrip supply within five years. At least with oil we know there are fifty years of oil reserves readily available. Moreover, oil is produced all over the world, limiting the monopoly power of any one country...." Source: Freakonomics

The bright side to Imports---They help us Export! Huh? Answer within...

I was quite surprised by this graph. A little over half of the dollar value of  imports into the US are in the form of inputs---goods used as a component in a finished good (Industrial Supplies) or are used to make other goods (Capital Goods).  Ultimately both contribute to the manufacture of a finished product MADE IN THE USA, to be either sold domestically or exported.  I am just a high school econ teacher, but I think that means jobs for Americans. I pose the question: Why is our trade deficit such a problem? (HT: CafeHayek)


Carpe Diem



The Chinese are invading the US...The weapon of choice is small appliances. Prepare your bunker (with small appliances from China of course)...

HT: Carpe Diem