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HSFPP Update # 188—What Does the Price of Corn Have to Do with Anything?

Message from Bob: I’m always looking for feedback. I hope you like the addition of the Academic Expectations to our latest updates. We have many changes over the years, including alternating the format of our regular financial lesson with a biweekly video lesson. If you like the changes or have other suggestions, please e-mail me at rflashma@email.uky.edu. That is a new e-mail address for me, so please note the change. Please also note that our Web URL is changing from http://www.ca.uky.edu/fcs/hsfp to http://www.ca.uky.edu/hes/fcs/hsfp, probably this week.

Message from Jennifer: Understanding the way our world economy functions is essential to obtaining financial stability in life. If you do not understand what causes the price of goods to fluctuate, it is difficult to compensate and adapt to changing prices. Today’s article In the New$... stretches students to understand what causes the price of a McDonald’s value-meal or a Dairy Queen milkshake to increase. 

 

Note to Educators in Kentucky: This week’s update is in line with the academic expectations listed below. This subject may especially interest social studies and mathematics teachers.

Academic Expectation 1.1
Students use reference tools such as dictionaries, almanacs, encyclopedias, and computer reference programs and research tools such as interviews and surveys to find the information they need to meet specific demands, explore interests, or solve specific problems.
Unit 1-7

Academic Expectation 2.13
Students understand and appropriately use statistics and probability.
Unit 2-6

Academic Expectation 2.18
Students understand economic principles and are able to make economic decisions that have consequences in daily living.
Unit 2-6

Academic Expectation 2.30
Students evaluate consumer products and services and make effective consumer decisions.
Unit 5

 

Educator Notes to Discussion Section:

1.) Have teens divide into groups of 3 to 5. Ask them to make of list of products made from corn (include things like corn syrup, which is used in most ready-to-eat breakfast cereals, soft drinks, and candy). 

A great Web site to help identify corn products is http://www.ontariocorn.org/classroom/products.html#Products%20that%20use%20Corn

2.) After teens have developed their lists, ask them to explore their own elasticity for these products.  Remember that elasticity refers to how responsive a consumer is to a product as the price changes.

 

Table: Products Made from Corn or Corn Syrup

Current price will vary by geographic region. For this example, current prices were observed at a major grocery retailer. All products are priced using a name brand, rather than a store brand. Add your own corn products and price at the bottom.

Corn Product	Current Price	Inflated Price 2%	Inflated Price 5%	Inflated Price 10%	Inflated Price 20%	Maximum Price
Cereal	$3.49/box	$3.56	$ 3.66	$3.84	$4.19	$3.98
Toothpaste	$2.50/tube	$2.55	$2.63	$2.75	$3.00	$3.50
Chewing Gun	$1.09/pack	$1.11	$1.14	$1.20	$1.31	$1.40
Shaving Cream	$2.09/bottle	$2.13	$2.19	$2.30	$2.51	$3.00
Tacos	$2.50/box	$2.55	$2.63	$2.75	$3.00	$2.60
Potato Chips	$2.79/bag	$1.93	$1.98	$2.08	$2.27	$2.50
Bread	$1.89/loaf	$1.93	$1.98	$2.08	$2.27	$2.50
Cosmetics – lipstick	$4.00 & up	$4.08	$4.20	$4.40	$4.80	$5.00

 

3.) Show your list of products made from corn or corn syrup.

3a.) Is my list of products different from those you made?

3b.) Read a box of corn flakes ingredients. How many sweeteners are in the foods you buy? Why so many?

4.) Ask teens to discuss rising costs of other goods and the driving economic factors behind increased costs. Gasoline is an obvious answer, so it might be good to use this as an example; if you do, be sure to discuss how factors such as Hurricane Katrina and the Iraq War directly influence gasoline prices. 

 

Web Site Pick of the Week:

http://www.bls.gov/bls/inflation.htm

“Overview of BLS Statistics on Inflation and Consumer Spending,” US Department of Labor, Bureau of Labor Statistics

 

In the New$… What Does the Price of Corn Have to Do with Anything?

by Jennifer Hunter, Ph.D. student majoring in Family Finance in the Department of Family Studies at the University of Kentucky

I think it was around the third grade when my class visited “Old McDonald Farm,” and I am sure most everyone has been on a similar class field trip, where you learn that milk comes from a cow and that brown cows do not produce chocolate milk. On that same trip, we got to see a field of sweet corn and imagine the scrumptious summer staple lathered with butter and salt. But, beyond learning that milk comes from cows, chickens really do lay eggs, and that corn comes from a farm instead of the supermarket shelf, we never discussed in the third grade, or any grade for that matter, the price of corn and milk and the direct relationship of these prices on overall inflation.

A recent CNNMoney.com article refers to corn and milk prices as a “1-2 inflation combo,” similar, I guess, to a 1-2 knockout punch in boxing. Corn is in high demand not only for human consumption and animal feed, but also for ethanol production, an attempt to reduce our reliance on foreign oil. Using the basic law of supply and demand, an increased demand with a limited supply will naturally raise the price of corn, particularly in the short term until farmers switch to growing more corn versus other crops. Corn prices have recently reached all-time highs; however, the grain farmer will most likely be the only one smiling. High corn prices will give the consumer a direct hit in the wallet with increased prices for soft drinks, cereals, and hamburgers, to name only a few. Think about it: corn oil is used in soft drinks, corn is the basis for many cereals, and cows are fed on corn and corn products. So you want to switch to chicken? Forget about it. Others are doing the same, raising the demand, and thus the price, for chicken. Some Southern farmers are even switching from cotton to corn, reducing the supply of cotton, which will raise the cost of cotton clothes. High corn prices have a ripple effect throughout the economy.

The same story is true with the price of milk. In addition to the fact that diary cows consume large quantities of corn in their diets, the demand for US milk has greatly increased worldwide, driving up prices and leaving the American consumer feeling the pinch. MSN Money cites U.S. Labor Department statistics that the price of a steak is up 5.5% from May 2006 to May 2007, chicken is up 7.7%, and milk is up 3% (and predicted to go higher).

Milk and corn for the most part are considered inelastic goods. An inelastic good is a product that consumers will purchase regardless of price; it is something that people can’t very well do without. So, as you continue to purchase corn, corn by-products, milk, and milk products your purchasing power for others goods decreases because you have less disposable income. This is known as inflation, when consumers have less purchasing power today than they did a year ago (or even a month ago).

So what does the price of corn have to do with anything? The answer is everything. 

Sources:

Cox, J. (2007, June). Corn and Milk: A 1-2 inflation combo. CNNMoney.com. Retrieved
June 20, 2007 from http://money.cnn.com/2007/06/19/news/economy/commodity_prices/index.htm

Jubak, J. (2007, June). How ethanol bites you in the wallet. MSN Money.  Retrieved June
20, 2007 from http://articles.moneycentral.msn.com/Investing/JubaksJournal/HowEthanolBitesYouInTheWallet.aspx

 

Discussion Questions:

Divide teens into groups and ask them the following questions. You will need large sheets of paper to place on the wall for group leaders to write their responses for the class.

1.) Take a few minutes and make of list of at least 12 products made from corn or corn syrup. (Cornflakes cereal is given as an example.) Complete the left column of the table below.

2a.) How much more are you willing to pay for these products on a percentage basis: 2%, 5%, 10%, or 20%? Please complete the chart by figuring the inflated price for each product. What is the maximum price you are willing to pay for each product? Circle that price?

2b.) As a group, determine which items you are willing to give up because of increased prices? If your group is not willing to pay more for an item, what would you use as a substitution?

 

Table: Products Made from Corn or Corn Syrup

Current price will vary by geographic region. For this example, current prices were observed at a major grocery retailer. All products are priced using a name brand, rather than a store brand. Add your own corn products and price at the bottom.

Corn Product	Current Price	Inflated Price 2%	Inflated Price 5%	Inflated Price 10%	Inflated Price 20%	Maximum Price
Example: Cornflakes Cereal	$3.49/box	$ 3.66	$3.84	$3.98	$4.19	$3.98

 

3.) Select one member of each group to share their list with the rest of the groups on one of the papers on the wall.

 

4.) Before the current discussion, you probably know that gas prices were rising. What other goods are increasing in cost? Think of as many as you can in the time you have, and give reasons.

 

Follow-up Activity for Teenagers:

Explore the U.S. Department of Labor, Bureau of Labor Statistics Web site at http://www.bls.gov/bls/inflation.htm. Have teens use the CPI calculator to calculate the value of today’s dollar in the year they were born, as well as for other significant years of their life to develop an understanding of the effect of inflation.

 

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/hes/fcs/hsfp

The purpose of the HSFPP financial updates, video lessons, and Web site is to assist county Extension agents, credit union educators, high school teachers, and parents who home school their teenagers so that they may improve the economic well-being of our teenagers; and also to show educators how the HSFPP, updates, and video lessons meet Kentucky core concepts. The Web site, updates, and video lessons are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators. The list of core concepts and order form for free program materials including the student guide and instructors manual can be found on the Kentucky HSFPP home page.

If you are not already on our listserv:
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