That Supply and Demand Thing

I glanced at this item in the Wall Street Journal this morning. But only after receiving a 91.7% gloat-free email from Josh at Everyday Economist did I think to relate it to a previous discussion at ThreeSources.

It seems that a record corn crop is being planted this year, the most corn planted since 1944. "The market reacted immediately this morning, fearing that a large crop would flood the market with corn. At the Chicago Board of Trade corn prices were down by 20 cents -- the daily limit -- to about $3.70."

Weather and additional Ethanol demand might keep prices up, as the article states -- but I'm inclined to trust the Chicago Merc more than a WSJ reporter. One has to admit that it is pretty classic demonstration: corn demand increases -> corn price increases -> farmers plant more corn -> corn replacement supply increases -> corn price decreases.

Corn planting will be higher this year in most farming states, taking away acres from soybean, cotton and rice production, the USDA said. Farmers in Illinois, North Dakota and Minnesota will each plant record-breaking corn crops for their states. Louisiana, a major rice-producing state, will plant 700,000 acres of corn this year, more than double the acreage in 2006, the USDA said.

Across the plains, farmers have placed big bets on where the price of corn will go in 2007. They are preparing to plant more corn than they have in decades, spending more on seed and fertilizer, investing in new equipment and buying crop insurance against the possibility of bad weather. Some are signing futures contracts to lock in prices now; some are holding off in the hope that prices will climb higher.

Somebody should tell Congress about this Economics thing, I think it's gonna be big.

Economics and Markets Posted by jk at March 30, 2007 6:19 PM