The prices of corn on benchmark futures rose to a record higher this year. Explain this phenomenon using demand-supply analysis.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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When prices rise, it can be either because of a rise in demand or because of a drop in supply (or both).  Futures prices for corn, then, would rise because traders anticipate that demand will be higher and/or that supply will be lower. 

It is possible that demand for corn will rise.  The world’s population is growing and getting richer.  This leads to more demand for food and in particular for meat.  Many animals are fed at least partially on corn so this would cause the demand for corn to rise.  The supply of corn may also be dropping.  The US has had a severe drought over much of its corn-growing area.  This would reduce the supply, also raising prices.

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