Economics - Headway

 

Standard 5 Individuals, businesses and governments interact and exchange goods, services and resources in different ways and for different reasons; interactions between buyers and sellers in a market determines the price and quantity exchanged of a good, service, or resource.

Benchmark - 9.2.4.5.4 -Explain that market supply is based on each seller's cost and the number of sellers in the market; analyze the effects of factors that can change supply.

This year’s corn crop was originally predicted to be one of the largest. Not only was the weather this spring ideal for planting, but more acres were seeded in corn than ever before. But optimism for a bumper crop has all but vanished in light of the brutal drought that has gripped America’s heartland. The nation’s two largest corn producing states, Iowa and Illinois are among the hardest hit.

The U.S. Department of Agriculture (USDA) reported that currently in Iowa, 16 percent of the crop is at the pollination stage two weeks ahead of schedule as a consequence of the drought. Rain is crucial for the crop at this stage. Without it, grain development will be poor. In southern Illinois, where temperatures hovered in the hundreds for several days, many farmers gave up on their crops and opted to cut them down and bail them as silage rather than suffer a complete loss. Corn crops in the north of the state are still hanging on. But without rain, they are destined to meet the same fate as those in the southern part of the state.

According to Kent Thiesse of Corn and Soybeen Digest, the poor condition of the corn crop in Iowa and Illinois has had a drastic impact on the market, and with other corn producing states like Nebraska and Ohio in the same boat, America’s corn crop is headed for a disaster if rain does not come soon. On July 9th, the USDA reported that currently, 30 percent of the entire nation’s corn crop is considered “poor” and some of that percentage is “very poor.” And the summer is not over yet! Senior meteorologist for the Weather Channel Stu Ostro says the only forecast for certain “is that the drought is going to get worse before it gets better.” More dry weather means more failed crops, and fewer crops means higher prices for the corn that does survive the summer.

To understand the impact that the shortages will have on you – the consumer – consider how many foods are derived from corn. All those tasty treats that are bad for your waistline such as candy, cookies, and sodas are made with fructose syrup. And the main ingredient in fructose syrup is – you guessed it – corn. But the list does not stop with sweets. Meat, milk, and eggs are also derived from corn because corn is the primary grain fed to livestock. When the price of corn goes up, the price of hamburger is usually not far behind.

As hard as the price hike on corn related products will be on Americans, some countries may feel it even harder. Many countries are dependent on American corn. Indeed, the U.S. is the largest exporter of corn in the world. Some of the countries that import American corn survive on much lower household incomes than is typical in the U.S., such as with Mexico. Consumers there will have a harder time adjusting to the increase. Oddly enough, Mexico produces most of the corn they use for human consumption – a white variety that is favored in the production of tortillas. The cheaper yellow corn imported from the U.S. is fed to livestock. Thus, a hike in the price of American corn is hardest felt by Mexico’s meat market.

Like Mexico, Japan depends on American corn to feed their livestock. While Japan may be more capable of adjusting to a price increase than Mexico, consumers there will, nevertheless, feel the sting. Japan is the world’s largest importer of corn, primarily because they are a large meat producing country with no coarse grain industry to sustain their livestock. Foreign dependency on American corn, like that of Japan's and Mexico's, insures that Americans will not suffer alone in the shortages brought on by this year’s drought.

If there is one silver lining to this year’s food shortage it may be for those opponents of government subsidized ethanol, a biofuel made from corn. Ever since passing the 2007 Energy Security and Independence Act, oil companies have been required to add more ethanol to gasoline, currently 10 percent. As a consequence, much of America’s corn crop has been diverted to fuel. In fact, 33 percent of the corn crop is now grown for ethanol. Corn farmers have profited enormously from both government subsidies and the greater demand for corn.

Critics of ethanol, like those that write for The Economist, argue that not only is it unfeasible, it also has the potential for creating a global food shortage in times when the corn crop is poor – as is the case this year. Their arguments against ethanol have fallen on deaf ears as the political trend has been to back the interests of farmers. But that may soon be changing if enough noise is made by consumers over high food prices this year. Politicians may be forced to reevaluate the feasibility of using a third of the nation’s corn for fuel when the shortage of food becomes a worldwide crisis.

 

Read more: http://www.digitaljournal.com/article/328677#ixzz24D2A5Iwr

 

Assessment - Write a paragraph or two, that explains that the corn market supply is based on each seller's costs and the number of sellers in the market, and the effects of factors that can change the supply.