Farm Prices and Quantities

In the Wall Street Journal for September 12, 1996, there is a story with the headline ``Grain Futures Fall After Harvest Estimate.'' I think you will find that the elements of supply and demand theory that you have learned in Experiments 1 and 2 will take you a long way toward understanding this story.

Since the headline says that the price of grain futures fall , would you guess that the new harvest estimates were for a bigger, or a smaller harvest than had been previously expected?

Here is the story.

The Corn Market.

The WSJ reports that the new forecast of the U.S. corn harvest for the fall of 1996 is 1% higher than the amount forecasted a month ago. The reason given is that growing conditions for corn were better than expected in the last month. Because of the cool, rainy spring weather, the corn crop got off to a slow start, but in the last month, ``warmer-than-normal weather across the upper Midwest'' has helped the corn crop to ``catch up.''

The story reports that this year's predicted crop is level is 19% higher than the size of what they call ``last year's heat-stunted crop.''

In trading at the Chicago Board of Trade, which handles corn futures markets, the price of a contract to deliver corn next December dropped 7.6 cents to $3.27 per bushel.

(Background information: Last year, poor weather resulted in a smaller corn crop than usual and as a result, corn prices this year are higher than they werein previous years.)

The story goes on to say that the Agriculture Department raised its estimate of ``corn reserves,'' which is the amount of last year's corn crop that is still in storage. They explain that recent record-high corn prices have reduced the amount of corn that has been used for such purposes as making sweeteners and making ethanol. The story points out that two major ethanol producers (who use corn to make a kind of alcohol used in some gasoline) have closed their factories, but plan to put them back into production in the fall.

The Wheat Market.

The same story reports that the Agriculture Department increased its estimate of the size of the wheat crop by 2%. This estimate takes into account better-than-expected weather in the Northern Plains.

In response to this news, the forecast for the price of the new wheat crop this fall has been lowered by 5% to $4.20 per bushel.

The report also says that wheat prices have been higher this year than in previous years and this has caused a wheat-planting boom overseas.

The Soy Bean Market

The government lowered its estimate of the size of this year's U.S. soy bean crop by 1.3%. According to the story, soybeans, like corn, got off to a slow start this year and despite the recent warm weather, the soybean crop continues to lag behind in maturing.

So what do you think happened to the price of soy beans after this announcement?

The price of a bushel of soybeans rose by 1.5 cents to $8.35.

Milk and Beef.

The high prices of grain have increased the costs of dairy farmers and beef producers, causing them to ``trim their herds.''

What do you think has happened to milk prices?

The price of milk has increased by 14.8% this year.

Farm Profits

The story reports that "Midwest granaries are still so bare due to a series of mediocre crops and strong world-wide consumption."

The story also reports that "some economists'' expect net farm income to increase by 45% above last year's profits.