Question

Record U.S. Corn Supply Grows Even BiggerEconomic pause due to the pandemic has slowed demand for corn as U.S. farmers plant a robust cropEnding stocks of corn are expected to exceed 3.3 billion bushels in 2020-21.PHOTO: DANIEL ACKER/BLOOMBERG NEWSBy June 11, 2020 4:17 pm ETKirk Maltais will cause prices to sink to as low as $2.70 per bushel. That would be the lowest corn hastraded at since 2006.“U.S. and world corn supplies are below the average guess, but still adequate for this yearand huge for next year,” said Doug Bergman, head of the agricultural trading desk forChicago-based RCM Alternatives.The Corn Belt is experiencing better weather than last year, when heavy rains hitproduction. The USDA reported Monday that 97% of U.S. corn intended for planting thisyear has been put in the ground, compared with 78% at this point last year. Three-quarters of emerged corn is in good or excellent condition, up from 59% last year, theUSDA said.Creeping UpU.S. corn production and ending stocks, pastfive yearsSource: USDANote: 2019 and 2020 figures are USDA estimates..billion bushelsProductionEnding Stocks2016'200.02.55.07.510.012.515.017.5 On the world stage, U.S. corn faces stiff competition from other nations like Brazil. Worldcorn stockpiles are estimated at 339.6 million metric tons in 2020, up from projections of337.6 million metric tons by analysts surveyed by The Wall Street Journal.Demand metrics for corn have been improving in recent weeks—U.S. ethanol productionhas been returning after sliding to a record low in late April. In the past six weeks,production of the corn-based biofuel rose 56% from April’s low to 837,000 barrels a day,according to data from the U.S. Energy Information Administration released Wednesday.The recovery in ethanol is still tenuous, however—as a potential spike in Covid-19 casesnationwide could easily see production figures careening lower. “All of this depends onhow fast people get back on the road,” said Dave Marshall, farm-marketing adviser withFirst Choice Commodities in Nashville, Ill. Read the article above and answer the following questions

: 1.Draw and label a graph that represents demand and supply in the market for corn. Indicate the point in the graph where the quantity demanded for corn is equal to the quantity supplied. Refer to the graph drawn for the previous question. In the graph show how an increase in supply would affect the equilibrium price and quantity of corn.

2.Economists consider corn and other commodities markets to be examples of perfect competition. In a perfectly competitive market individual firms are “price takers.” What is a price taker? How is the demand curve for an individual corn farmer different from the industry demand curve for corn?

3.From the article: “…U.S. corn prices are lower for the year… Many farmers peg the break-even price for their corn crops at $3.20 per bushel, but some grains traders anticipate that the high supply figures will cause prices to sink to as low as $2.70 per bushel.” If a corn farmer “breaks even” does the farmer earn no accounting profit? Does the firm earn no economic profit? In your answer explain the difference between accounting profit and economic profit.

4.From the article: “…a reduction in demand for corn to make ethanol is the key factor driving stockpiles higher. ‘Corn used for ethanol is lowered reflecting a slower-than-expected rebound in ethanol production,’ the USDA said.” Explain why the demand for ethanol has decreased

. 5.Referring to the market for corn the article states: “Production is also at a record high, with the USDA maintaining its forecast… at 15.99 billion bushels. That is up more than 2.3 billion bushels from last year’s total, the result of a record 97 million acres planted this year.” Why wouldn’t farmers jointly agree to reduce the number of acres they planted in order to increase the price of corn?

Answer 1