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Friday, February 06, 2009

Economics I don't understand, #5

Commodity prices are in many cases coming down dramatically, as this story on milk prices illustrates:

Wholesale milk prices down 50 percent
TRI-COUNTY AREA—High supply and low demand has meant a 50 percent drop in the wholesale milk prices dairy farmers are getting paid.
Skip Jensen, with the New York State Farm Bureau for Schuyler County, said that the price dairy farmers received last year at this time was around $22 per 100 lbs. of milk. Current prices are around $11 per 100 lbs. of milk. Jensen said the projected prices for February and March have it staying the same.


Transport costs are also down, with the decline in gas prices. But the price of milk in Chicago grocery stores has, if anything, gone up. This seems to be an unusual amount of price stickiness on a frequently purchased, widely sold item. People who buy a lot of milk buy a lot of other stuff as well. So why aren't there more price cuts?