This Is the Perfect Storm That Caused Grain Prices To Soar

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, obviously, we've been talking about inflation a lot lately, but I think there's like one category of inflation or one category of goods inflation that really sort of like hits people or resonates with people emotionally more than others.

Tracy Alloway (0:35)

It's mayonnaise, obviously.

So I wrote that article about mayonnaise specifically, but it has to be food inflation. Like this is the one thing that sort of strikes fear into everyone's hearts. And it's probably where people or where you start thinking about inflation expectations the most. It's people who are actually going to the grocery store, who are looking at the price of coffee or a banana or something like that. And they can see on a day to day basis whether or not it's going up.

Joe Weisenthal (1:05)

Yeah, exactly. So it's like, we can talk about like CPI and aggregate and oh, a big portion of that is say like used cars. But how often do you buy a used car?

For most people, that's like a pretty rare purchase. So you don't like see it in your face.

You see it in the grocery store.

Everyone sees it who goes shopping, whether it's the price of milk, whether it's the price of vegetables, the price of meat. For the most part, many of these items have gone up significantly in the last year. And of course, the thought of like, okay, the rising costs like literally feed your family is a pretty big deal. Like it's about as sort of, you know, if you're thinking about like, well, what forms your view of inflation? That and probably gasoline prices for people who don't live in a big city are probably like, they're the two big ones.

Tracy Alloway (1:51)

Food and gas, but food, I mean, there's something about it. It's almost like it's tied to modern civilization as well, right? Because you're not supposed to think about how the supermarket works. You're not supposed to think about how the food, the vegetables, the meat, or whatever get from the farm to your table. You're not supposed to think about supply chains. But when you start thinking about them, it's usually in a really negative and worrying way. And that's when things kind of start to fall apart. So I don't know. I feel like the modern supermarket is sort of at the heart of the way we live nowadays. So when things go badly there, people start to freak out.

Joe Weisenthal (2:29)

It kind of feels like a big theme of a lot of our episodes lately is like, we wish we didn't have to talk about these things and it's a bad sign that we are. But anyway, so food inflation, not great. And food prices have gone up considerably over the last year.

And there are varied reasons for this. But one thing that we've really seen over the last year, and we did one episode on it in the early 2021 with Scott Irwin over at the University of Illinois is grains. And of course grains are consumed by humans, but they're also consumed by animals. So the higher grain prices feeds into higher meat and dairy prices and so forth.

And one of the interesting things about grains, I think historically are soft commodities in general, agricultural commodities, is that they often seem like of the commodity complex, more disconnected sometimes from the macros. So you can like grains may be affected by drought or other conditions, whereas something like, you know, oil might just be like a reflection or oil might be reflection of the macro economy, boom or bust. Grains and other soft commodities, they might have more idiosyncratic factors like what was the weather in Brazil like, or what was the weather in Iowa like? And so it's kind of like a, it's a niche that sort of, I think a lot of people don't spend a lot, if you're not in it, don't spend a lot of time like sort of think about specifically.

Tracy Alloway (3:50)

Yeah, I think that's right. I mean, I think rarely does the price of wheat go up because GDP is at like four or 5% or something like that.

Joe Weisenthal (3:58)

Yeah, exactly. So a recovery could obviously increase the price of gasoline or copper, but usually we don't really associate the price of like, yeah, wheat or corn with the cycle. That being said, right now we are seeing this boom in grains, particularly wheat. So wheat, corn and soy, or as they call them in the industry, beans, they're all up a lot from last year.