Oil, Onions & Other Tidbits
People don't stop buying onions just because they cost a bit more. The same goes for flowers.
June 15, 2011
This spring season was a mixed bag. Depending on which part of the country you’re in, Mother Nature was either very kind or very temperamental. For the most part, growers reported sales were especially good during the good weather and surprisingly strong otherwise.
The same could be said about the country economically, as well. Some areas of the country continue to recover from the economic downturn nicely and others are progressing slowly, if at all. Some improvements in the labor and housing markets have been experienced this year, but not as quickly as some had hoped.
Much attention has been placed on oil prices and their supposed influence on consumer purchases. However, a recent study debunked this notion, finding that consumer purchases of other discretionary items are less influenced by gasoline prices than originally thought. Instead, they tend to substitute regular gasoline for premium when prices rise above their tipping point. But these findings are not dissuading the government from scrutinizing the role that speculators may have played in driving up fuel and food prices. Still, the investigators may want to take a look at price swings in a commodity, not in today’s news such as onions!
The Importance Of Supply & Demand
According to a recent article in Fortune, the bulbous root is the only commodity for which a futures market is banned. Back in 1958, onion growers convinced themselves futures traders were responsible for falling onion prices, so they lobbied an up-and-coming Michigan congressman named Gerald Ford to push through a law banning all futures trading in onions. The law still stands.
And yet even with no traders to blame, the volatility in onion prices makes the swings in oil and corn look tame, reinforcing academics’ belief that futures trading diminishes extreme price swings.
Since 2006, oil prices have risen 100 percent, and corn is up 300 percent. But onion prices soared 400 percent between October 2006 and April 2007 (when weather reduced crop yields), only to crash 96 percent by March 2008 on overproduction and then rebound 300 percent by this past April.
OK, so why am I spending the time to write about onions? First, to illustrate that, left unchecked, the effects of supply and demand in determining prices can be quite volatile. Second, to make the more subtle point that these price swings would not occur if onions were not a staple purchase in consumer lives. If they weren’t, folks would simply substitute something else for onions when the price got too high. But what else would go so well with that nice juicy cheeseburger?
No, people don’t stop buying onions just because they cost a bit more and that’s a lesson we in the green industry should contemplate once more. People afford what they want and we need them to want roses and zinnias and daylilies and dracaena in the same way they want onions. In other words, and you’ve heard this before, we need consumers to view our products and services as necessities instead of mere luxuries – and we do this by emphasizing the economic, environmental and health benefits of what our industry offers. Be sure to check out the America in Bloom website and my Making Cents blog for more on that subject.
To Be Successful
Through the years I have heard sage advice from various industry leaders, consultants and motivational speakers that pontificated on various keys to success. However, I recently read a blog post that struck a chord as soon as I read it. The blogger was talking about the top 10 things we should be teaching high school students today, but if you review the list, I think you’ll agree it fits what we should be training our greenhouse employees as well:
- How to focus intently on a problem until it’s solved.
- The benefit of postponing short-term satisfaction in exchange for long-term success.
- How to read critically.
- The power of being able to lead groups of peers without receiving clear delegated authority.
- An understanding of the extraordinary power of the scientific method, in just about any situation or endeavor.
- How to persuasively present ideas in multiple forms, especially in writing and before a group.
- Project management. Self management and the management of ideas, projects and people.
- Personal finance. Understanding the truth about money, debt and leverage.
- An insatiable desire (and the ability) to learn more. Forever.
- Most of all, the self reliance that comes from understanding relentless hard work can be applied to solve problems worth solving.
Heck, now that I’ve reviewed the list again, I think it applies to all of us.
Charlie Hall (firstname.lastname@example.org) is the current chairholder of the Ellison Chair in International Floriculture at Texas A&M University.