Word of the Day

Commodity

Even if you don't think you do, you already know plenty about commodities. Want us to prove it? No problem.

What makes oil produced in Saudi Arabia different from oil exported from Nigeria? It's the same thing that makes the corn you ate at last summer¿s barbecue different from the corn used to produce ethanol. Stumped? Well, don't feel bad, it's a trick question. The answer? Absolutely nothing. Corn is corn no matter where it comes from -- just as wheat is wheat and natural gas is -- right! -- natural gas. (Though the quality may differ, the make-up is uniform.)

So, in less elaborate terms, corn and oil (and all other commodities) are homogenous goods that can be processed, resold and more often than not, used as an input to the production of other goods or services. These goods are traded on a commodity exchange, thus setting the price-per-barrel (or other metric unit) used to value them.

Now pay attention, here's a question that indeed does have an answer: What is the difference between a commodity and a stock? While a stock can tank and become worthless, a commodity cannot have its value be wiped to zero. One other difference: Most commodities are traded in futures, meaning traders buy and sell where they think the price of a product will be at a certain point in the future. Stocks trade based on the value of the underlying company at that point in time.

Home / Personal Finance / Lifestyle & Money

Friday, May 23, 2008

Backyard Barbecues Grill the Wallet

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Mark Lieberman, Senior Economist

FOXBusiness

So, high gasoline prices forced you to change your plans and cancel that driving trip for the long Memorial Day weekend. You decided the 61.3¢ increase in the price of a gallon of gasoline since last year – a 21.5% bump – was a bit too much to handle, and figured you’d throw your first barbecue of the season instead.

You picked the menu: burgers, chicken, salads, soda, beer, potato chips, ice cream, cookies. Now, hold on to your wallet: that simple stay-at-home barbecue will cost about 7% more than it did last year.

That’s the math based on prices tracked by the Bureau of Labor Statistics. In fact, the jump in the price of a simple Memorial Day barbecue over last year was the steepest in the last ten years. And get this, over that span the price of your barbecues fixins is up almost 33%.

The cost of the Fox Business Barbecue rose slightly faster than overall food inflation during the past year. Food prices are up about 5% from April 2007 to April 2008, according to the BLS data. In the last ten years, food prices are up just under 32%.

The cost of your barbecue was driven up primarily by an increase in, respectively, the price of: potato chips, up 11.5% in the last year; ice cream, up just under 11%; and soda, up just over 10%. Some of the increases are due to the higher cost of grain – used to feed the cows which produce the milk for the ice cream – as well as the corn syrup used to sweeten both the soda and the ice cream, a consequence of higher gasoline prices and ethanol supplements.

Here are details of some of the items on the menu for our Fox Memorial Day Barbecue, comparing costs this year, last year and ten years ago.

The cost of a burger (meat, bun and cheese) this year is $2.59, up 18¢ or 7.5% from last year and 82¢ or 46.3% since 1998
The cost of an individual serving of potato chips is 38¢, up 4¢ or 11.8% in the last year and 7¢ or 22.6% in since 1998
The cost of soda is up 9.4% in the last year and 25% since 1998
Ice cream soared almost 11% in the last year and 36.6% since 1998
One traditional barbecue item remains a relative bargain: beer is up just 0.9% in the last year but 33.3% in the last ten years

The cost of the fixins is only one element in barbecue economics. In the last year, prices rose faster than average hourly earnings, which means it would take the average worker about a minute longer to earn the cost of the barbecue (per person) than it did last year. Over the longer term, the analysis is brighter: compared with 1998, it would take the average wage-earner a minute-and-a-half less time to earn the cost of a barbecue today as average hourly earnings rose faster during that time than the cost of food.

Fox Business Intern Adam Samson contributed to this report.

Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president at Washington Mutual, where he was manager of economic analysis and research. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He has a degree in Economics from the Wharton School of the University of Pennsylvania.