Popcorn

This past Friday, corn prices plummeted to their lowest level since December after the U.S. Department of Agriculture surprised the market by saying stockpiles had been severely underestimated.  In actuality, the reserves of corn were a quarter higher than previously documented.  The unexpected buildup in reported supplies of the country’s largest agricultural product tore prices down by an astounding 6.3%, which is a 25% decline from the all-time high on June 10.  In addition, the report also dragged down wheat prices, suggesting a correlative crop relationship.

          The USDA’s poor assessment underscores how difficult it is to accurately measure the nation’s gargantuan agrarian output—the U.S. produced 38% of the world’s corn last year. Because of the new price decline, high cost pressures on food corporations and beleaguered consumers are assuaged.  Yet, serious cuts in farmers’ income occur as well.   The volatility of the corn market, as modeled by the USDA, can be exacerbated by variables like false information and miscommunication.

           Moreover, this situation is a prime representation of fundamental economics.  With an increase in demand and an increase in supply, the equilibrium quantity inevitably increases. In this scenario, price decreases, but is theoretically indeterminate.  The inherent patterns of supply and demand really can be found anywhere.


(Information taken from “Corn Market Surprise”, The Wall Street Journal October 1st 2011)