When I was in elementary school, my mom agreed to be the “cookie mom.” What that meant was that all of the Girl Scout cookies for my Brownie troop went to our house. Our entire living room was filled with cookie boxes. Thin mints, caramel delights, peanut butter patties, lemon pastry cremes, shortbread, iced ginger daisies, …. We had them all. Piles and piles of cookies. It was almost like a dream.
The night after the cookies arrived I drifted off to sleep…
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I hear the doorbell ring and I run to answer it. It’s a truck full of cookies. I call out to my family, and we carry them into the kitchen since the living room is full. As soon as we close the front door the doorbell rings again. More cookies. We put them in my bedroom this time. Then with the next arrival they fill my siblings’ bedrooms, and then my parents’ bedroom, … Our house is filling up with cookies…
At first this is exciting. We have more cookies than we could ever want! But then the dream takes a dark twist.
“Ring Ring.” The phone rings, an order of Girl Scout cookies is cancelled. I hang up in confusion.
“Ring Ring.” The phone rings again. Another order cancelled….
And so the calls keep coming in…. No one wants to buy Girl Scout cookies. Meanwhile, the doorbell rings again. It’s more cookies. What are we going to do??
I wake up in a sweat screaming for my mom. She comes rushing in.
“What is it?” she asks.
“We don’t have enough room to store all of these cookies! We need to pay people to take the cookies! It will cost more to buy a storage unit to store them than if we pay people to take them off our hands!”
My mom lets out a little laugh. “Wake up, Susan, it’s just a dream.”
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Phew… glad that was just a dream.
But was it?
Remember going to the grocery store last year and seeing a table set up out front where girls are selling Girl Scout cookies? Or a local fair where Girl Scout cookies are available for purchase? Or the door bell ringing and someone there with cookies ready for you to purchase? The girls (or probably their families) have paid for these cookies that they are then going to sell. They placed these orders at the beginning of the year in anticipation of selling them this Spring.
However, given current stay-at-home orders, these Girl Scout troops are not out there selling. What that means is that there are boxes and boxes of cookies sitting in their homes, just like they were at my home all those years ago. While it might not have reached the extreme levels of my dream, it is still a problem that many are facing.
How does excess Girl Scout cookies with lower demand relate to oil?
Just this week, crude oil prices went negative. Normally, a price indicates how much you have to pay for something. You want to buy Girl Scout cookies; you have to pay $5 for them. Imagine, instead, you walked up to Girl Scouts selling cookies and the price didn’t say “$5”, it instead said “minus $5.” In essence, that would mean that the Girl Scouts would give you the cookies AND give you $5.
How did this happen to crude oil? Well two things, actually. Increased supply. Decreased demand.
In one of my original posts, I talk about the “OPEC” of maple syrup: Canadian maple syrup producers working together to control the supply of maple syrup – just like oil producing countries often work together to control the supply of oil (which then affects the price). By keeping production low, firms can typically keep the price high.
However, there is temptation to defect from the plan. If you are producing maple syrup (or oil) and other firms are keeping their supply low to keep prices high, it is tempting to increase production from your firm so that you yourself can benefit from selling more at the high price.
That is what happened with Russia and Saudi Arabia. These two high oil producing countries had agreed to cut production of oil. Saudi Arabia instead decided to benefit from higher oil prices and increased their production. Thus, there is more supply on the market.
Then… COVID-19. Suddenly people are not driving or flying. In other words, they are not using gasoline. The demand for oil came to a halt (well not completely, but pretty much). Here is a great WSJ video describing increased supply and decreased demand: (article and video)
This situation would be akin to suddenly everyone cancelling their Girl Scout cookie orders or Girl Scouts not being able to go out and sell cookies that they have already purchased.
Where should all the barrels of oil go? Warehouses are full. Maybe they can be put on boats and stored in the ocean? However, the price of boats/storage is increasing with higher demand for it.
What should oil producers do with their oil? Sell it. For a negative price. Buyers can have the oil AND money. It is cheaper to do that than to hold onto the oil and find somewhere to store it. In other words, it costs more to store the oil than to pay someone to take it off their hands, which leads to a negative price! The negative price is, in essence, the cost of getting someone to take your surplus oil off your hands so you don’t have to store it.
And that’s where we were this week: negative oil prices. Did they stay negative? No. The market assumes that people will again be on the roads and in the air soon such that the demand for oil will rise. People will begin buying again. Additionally, countries across the world have agreed to cut back production of oil. On top of that, President Trump wrote a threatening tweet towards Iran on Wednesday. More conflict in the Middle East would negatively affect supply, which would decrease supply of oil and increase price. This tweet might have led to the increase in price. (source)
The Girl Scout market has not had to turn to negative prices, at least so far. Despite initial concerns as cookies arrived but Girl Scouts were not able to get out and sell them, they are now advertising online and collecting credit card information electronically. (source)
*** While I made up the dream in this post, my mom was the cookie mom one year and our entire living room was filled with cookies. Fortunately there was no global pandemic halting people’s ability to get out and deliver cookies. Also fortunate, for me, our family ended up buying a lot more cookies that year than we normally did!
Girl Scout Cookies:
You typically cannot buy Girl Scout cookies online, but given COVID restrictions, you now can! You can also donate them to someone if you want. Know someone stuck at home or a little down because they've lost their job, this might be just the thing they need. Just go to the Girl Scout website.
I made the original Girl Scout cookie: the Shortbread. It may not be the most popular (Somoas and Thin Mints are my favorites), but it requires pretty basic ingredients you have on hand: flour, sugar, butter, egg, vanilla, milk, and baking powder. While the cookie is good, to me it doesn't taste like the real thing.
One of my favorite food bloggers, Sally's Baking Addiction, has a recipe for Thin Mints that I trust is delicious.
But, let's be honest, nothing beats a real Girl Scout cookie. So, go ahead and order some, put them on a plate, and tell everyone they are homemade.