Brian Wolgast Blog Post #1: Spike in Agricultural Supply

               According to current projections, the 2014 harvest of major field crops such as corn and soybeans might approach records for largest harvest in American history. While this might sounds like a good thing as farmers will be able to sell more, the unfortunate truth is the opposite for these farmers as prices have dropped sharply since the planting of said crops. While economically, we would expect a supplier to supply more at a higher price, the favorable weather created a shift in supply to the left.  As a result, farmers will now be willing to sell greater quantities at the same price that they would have sold their crops in years past. That being said, prices have decreased sharply.  Farmers in the Corn Belt have been selling for about $3.35 per bushel on average as opposed to the $4.50 price in March, and more than $7 from a year before that. While the harvest this year might be larger than the norm, this is not to say that it is anywhere near 50% larger than usual. The price drop is instead a result of an inelasticity that exists in the in both the supply and demand of this market; meaning that farmers will still offer close to the same amount of grain despite large price drops or increases and consumers will most likely purchase similar amounts of such a good regardless of any hikes or drops in prices.  Experts on the matter say that this will have long term effects on top of the less profitable short-term. They believe that decreased asset pricing, as well as the inevitable tightening of monetary policy by the Fed, these farmers will also see their land decrease astronomically in value.

                This spike in supply does however appear to be great for consumers as experts are predicting “easing” in prices of margarine and cooking oils. This of course is due to the idea that despite drops in prices, they will still consume similar amounts as prior to the drop and therefore be able to consume a higher level of “all other goods.”  On top of the consumers, livestock producers will benefit from these lower prices as they will have an easier time feeding said livestock.  This is to say that the price drops don’t have negative implications for the entire farm sector.

Sources: http://bismarcktribune.com/news/columnists/ed-lotterman/bumper-crop-is-bummer-for-some/article_b6915aea-3903-11e4-96e3-001a4bcf887a.html