In my Agricultural Price Analysis class this past Tuesday, Tim Petry, NDSU Extension Livestock Economist, gave a talk on Applied Livestock Price Forecasting. The talk, covering an extensive and complicated subject, narrowed in on the wholesale pork belly yearly price line graph at one point during the lecture.
As we looked at the line graph, the line seemed constant except for a considerable peak during the month of August. In order to help our class figure out this increase in demand for pork bellies in August, Mr. Petry asked the class some questions.
He asked first, "What are wholesale pork bellies used for?" Half the class happily answered, "Bacon." He then asked, "What tastes really good with bacon in August?" No one answered, but there was obvious gear grinding in the heads of my peers, and my own.
With no answer, Mr. Petry proceeded, "BLT's taste great with bacon in August, of course!" And sure enough, as he went on to explain, gardeners across the country grow tomatoes and the month that they all ripen is the hot, dry month of August. And what do people do with a bunch of free tomatoes? Make BLT's, therefore increasing the demand for bacon and wholesale pork bellies, and because of the predictable pattern of tomatoes ripening in August, wholesalers of pork bellies raise prices for that predicted increase in demand.
These goods, where a decrease in the price of one good (in this case, free tomatoes) directly causes an increase in the demand for another (wholesale pork bellies, and therefore a price increase) are called "complementary goods" by economists. Other examples include peanut butter and jelly, whole turkeys and cranberries, and lettuce and salad dressing.
If Mr. Petry wouldn't have helped us to come to the conclusion that free tomatoes caused an increase in bacon demand in August, I would have stared at the line graph he gave in his notes for days and never thought that a decrease in tomato prices would cause an increase in wholesale pork belly prices. Economics is fun!
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