Going Hungry?

 

The United States is currently the biggest exporter of corn, and the world corn trade prices tend to be determined by the U.S. markets supply & demand relationship. Due to the U.S. influence on corn prices, there is a price dependency on weather in the U.S. Corn Belt.

The price of corn has dramatically risen since May 2012. On August 10, 2012 it reached a peak of 843.75 cents per bushel this price is above the peak corn had reached in the 2007-2008 food crisis where it peaked at 765.00 cents per bushel. The increase of price during May and June can be attributed to wet weather around the United States; this led to the delay of corn planting. But the price began to soar towards the end of June and into July, as the most serious drought in the past five years hit the Corn Belt. The drought led to wilted fields and radically reduced the supply of corn; the USDA (United States Department of Agriculture) estimated a corn harvest that is 13% lower than last years. However demand throughout the summer stayed relatively unchanged as the price has still not dropped below 750 cents per bushel. The great constant demand for corn is due to the need for it to be used in livestock feed, and recently livestock producers are planning to work under capacity to reduce the consumption of corn until the prices drop back down. This has led to speculation that demand destruction can occur, due to the continued high prices and livestock producers planning to reduce consumption. The reason that there is only speculation of demand destruction is due to the demand for corn in the production of ethanol and corn syrup (contains fructose from corn). The use of corn syrup is guaranteed in various fruit drinks, soft drinks, and candy; this is due to high prices of cane sugar. Due to the various factors mentioned corn is able to maintain such a high price during a time of vastly reduced supply, due to the lack of downward shift in demand.

Demand Destruction:

A permanent downward shift of the demand curve, most commonly occurs when a price of a commodity has for a long period of time been constrained of supply or high in price.

 

http://www.ft.com/cms/s/0/e04706c0-fca4-11e1-9dd2-00144feabdc0.html#axzz26daUBA5q

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One thought on “Going Hungry?

  1. Some excellent analysis. Very impressed with the level of detail and your very clear explanation of events. Just a couple of very small points. It would be useful to see a diagram to support your evaluation.

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