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Friday, June 06, 2008

Extra!! Extra!!

This just in: Supply curves are upward sloping (kinda)!!

From yesterday's Southeast Farm Press:
Despite price competition from corn and soybeans, U.S. growers appear to be increasing their peanut plantings this year, by an estimated 16 percent, according to USDA's 2008 planting intentions report.

U.S. peanut producers intend to plant 1.43 million acres of peanuts in 2008, up considerably from last year’s crop. A higher price received for the 2007 crop, compared to the previous five years, is seen as the primary reason for the expected increase in planted acreage.

Contract price for peanuts in May 2007: Approximately $0.175 per pound.

Contract price for peanuts in May 2008: Approximately $0.211 cents per pound.

Acreage planted for peanuts in Spring 2007: 1.23 million acres

Acreage planted for peanuts in Spring 2008: 1.43 million acres

Percentage change in price: 20.57%

Percentage change in acreage (or quantity): 16.26%

Price elasticity of peanut supply: 16.26/20.57 = 0.79 (relatively inelastic)

Granted this is only one point on the supply curve, but it is interesting that the supply response of peanuts seems to have been relatively inelastic. Two immediate thoughts: this could be caused by the strong prices of corn, soybean, and other crops makes it difficult for farmers to substitute into peanut production. Furthermore, it could be that farmers simply cannot increase their yield from given acreage for peanuts.

Meanwhile AgNet Online reports that peanut supply is down.

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