Influence of Supply and Demand on Corn Prices

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Table of Contents

Historical Trends in Corn Prices and Supply And Demand of Previous Years
Projection of Supply And Demand Numbers for the Next Year
Potential Pitfalls of the Price Corn Analysis
Recommendations to the Upper Managers
Works Cited

Historical Trends in Corn Prices and Supply And Demand of Previous Years

Prices have largely been influenced by the supply and demands rates. Regarding the supply factors for corn prices, specific attention should be paid to the analysis of stocks, production, and imports. The presented numerical data was premised on the situation with carryover and beginning stocks that influence supply rates of corn.

In particular, larger stocks ensured extra supplies in case the production level was low whereas small stocks did not provided safety grounds and could negatively influence supply. All these reforms contributed supply rates was significantly diminished causing increase in corn prices. However, it did not influence the corn price because the demand rates remain the same.

Regarding the supply and demand rates, corn prices in 2002/2003 period equaled to $ 0.34 per bushel whereas the period from 2003 to 2003 reveals a significant price rise by $ 1.66 per bushel. The next year, the price was almost doubled and reached $ 3.4 per bushel (Leibtag 2).

The period of increase, from 2005 to 2005 is explained by an increased demand for corn-based ethanol production. Higher demand of corn use in food production has also contribute to the increase in supply, which followed by the increase in prices. The increase in price observed is associated with higher demand for ethanol. As a result, demand for corn increased due to the increased demand for ethanol, which later influenced positively the price of corn.

Judging from the above, the farmers are likely to increase prices on corn because of the demand on the products made from corn – ethanol and corn flakes. Corn was also used for feeding cattle (Leibtag 4).

The fluctuations in price were explained by higher demand for corn involved into the production of food, including ethanol, corn flakes, and corn syrup for beverages (Hoffman 2). The 2007-2008 marketing years also provides a significant increase in prices from $ 3.28 per bushel in 2007 to $ 5.26 per bushel in 2008 (National Agricultural Statistics Service 1).

Annual report statistics on farm income for the period from 2008 to 2012 has proved that revenues for producing corns have witnessed $ 1.4 (0.7 %) rise. The increase is relatively lower that it was in period between 2007 and 2008 years (about $ 2). However, the corn prices follow a steady tendency of price augmentation.

A significant rise in prices observed in years 2007 and 2008 can be explained by variations in supply and demand on the product. In this respect, increased supply influences positively the price, but if supply increase along with demand, corn price rates will be unchanged. At the same time, if demand increases, the price rates will also increase.

Projection of Supply And Demand Numbers for the Next Year

With regard to the above corn price rates due to the increased demand of corn, the future perspective promise to be positive. Increase in supply can also negatively influence the corn prices unless the demand rates fluctuate. Regarding the time series graphs (Sea “U.S. Corn Supply”), the supply of corn promises to augment steadily.

The explanation for this can be presented with reference to corn price rates for the previous years. Hence, as it has been presented earlier, corn prices gradually augmented and experienced a significant rise in period between 2005 and 2007. Regarding the table, the supply of corn also been significantly increased. Therefore, it can be suggested that increase in supply can be connected to the increase in corn prices.

Supply rates should be closely intertwined with demand levels because it will significantly influence the corn price fluctuations. Looking at the diagram (sea graph “U.S. corn utilization”) allows us to understand what factors does demand variations involve, including ending stock, export needs, corn-based ethanol production, and feed and residual needs.

In addition, one can track a slight growth of corn utilization in the sphere of fuel alcohol production, that has grown by 7 million gallons from 2003 to 2009 (USDA n. p.). While synthesizing the demand and supply rates with the corn prices projections, it should be stressed that corn price will encounter a relative fall (See graph “U.S. corn price and stocks-to-use ratio”).

Despite the fact that corn prices have extremely increased by 2009, a slight decline in corn prices will be expected in future years. So, the price for bushel will be below $ 4 (Hoffman 3). Despite the fact that corn prices will be lower, the demand for this product will be higher than in 2006 and as a result, the prices will be much higher in 2012.

Overall, the presented analysis proves that introduction of a new seed to the corn market can be beneficial due to a wide variety of perspective for corn price augmentation.

Potential Pitfalls of the Price Corn Analysis

The correlations between previous trends and future trends prove that corn prices will be raised due to a number of factors. Specifically, the supply for corn will be higher because of demand of corn-based ethanol production, food and beverage production, and feed grain production.

Despite the promising forecast, considering possible risks and pitfalls is also important. For instance, it is impossible to predict the regular increase in ethanol demand, which is among the key sources for corn farmers to receive significant net profits. In addition, it is impossible to forecast how water utilization and fertilizer can influence the yield gains. Finally, trends in prices for other crops can also be increased, which can influence the supply and demand for corn.

Recommendations to the Upper Managers

Judging from the presented projection of corn price rates for the next year, the introduction of the new corn seeds should be introduced because it will have a number of benefits. First of all, because the supply and demand rates are relatively steady, the corn price will also remain stable.

Second, the introduction of a new product will attract more farmers who want to increase demand for their products. Specifically, because they will be able to produce much greater amount of corn on the same area, they can receive much more revenues that they expect. Third, corn prices tendencies are likely to grow further due to the increased demand of corn that is often used for producing other important products, such as ethanol, corn flakes, and feed corn for cattle.

An important notice should be given to external factors that influence supply and demand rates of corn, which implies reviewing corn price fluctuation in a broader context. Finally, the presented graphs revealing information on the interdependency of corn price, supply, and demand prove the tendency of price stability in future.

Works Cited

Hoffman, Linwood, 2005, Forecasting the Counter-Cyclical Payment Rate for U.S. Corn. An Application of the Future Price. Electronic Outlook Report from the Electronic Research Service. Web.

Leibtag, Ephraim. 2008, Corn Prices Near Record High, But What about Food Costs?. Economic Research Service. Web.

National Agricultural Statistics Service 2008, Agricultural prices –corn. Web.

USDA. USDA Feed Grain Baseline, 2010-2019, Corn: Market Outlook. 2010. Web.

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