More corn to be grown this year then in the past 100 years.
On Friday, the US Department of Agriculture said that US farmers plan to increase their corn-growing by the greatest amount seen in the last 100 years! Why? Currently a high increase in demand for ethanol exists, which can be produced from corn. Effected sectors of the increase corn production include soybean and cotton. For all the corn-lovers out there, this could be great for your wallet. The greater the availability of corn, we know from econ that the cheaper the prices should be. This comes at a cost though.
If soybeans and cotton are affected, this naturally would mean increased prices to buy these goods. Should we expect to pay more for soybeans (I don’t, I don’t consume soybeans, but some other people must…) and pay more cotton, something that the majority of Americans do use? If so, will we see a large jump in prices for cotton?
5 comments:
I think that this is a hard question to answer because we're not really sure how much the soybeans and cotton will be affected. If we were to know to what extent the damage was, then we could better predict the outcome of the price of soybeans and cotton. Logically thinking I would say that the price of these products would be affected, and consumers would have to pay more but there won't necessarily be a large jump in the price.
If more resources are being allocated for growing corn, then the price of soybeans and cotton will increase. Even if the price increase is not substantial, there will still be a variance in the price.It is hard to estimate exactly what the price difference is going to look like though, without knowing how much more land and resources are going to be put towards the corn.
The supply of corn will increase because of a greater demand for corn. So both the demand curve and the supply curve will shift rightward. What does is it mean? It means there will definitely be a greater equilibrium quantity in the corn market. But what the price will be? It may be a little bit premature to conclude. Because the increase of demand will lead to a higher price and the increase of supply will lead to a lower price. But now we still do not know which will play a more important role in the market. If the demand of ethanol is still greater than the supply even farmers have grown more corn, then there will still be shortage and the price will still go up. But if farmers can grow corn fast enough to satisfy the demand the price may go down. Therefore, the price is still indeterminate.
I think its great that the demand for corn is rising. Ethanol plants are going to need alot of corn which benefits farmers. This is a win win situation for farmers and everyone who owns a car.
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