Let's Talk About Corn

Food supply is one of the hottest issues in recent years. The demand growth from new economies (China, India, Brazil...) triggered the food and commodity speculation in 2008. After the 2008 recession and global economy started to recover, the supply side is hammered by ruthless climate. In Chinese, we say “穀貴傷民 穀賤傷農.” It means that high food prices hurt people and low food prices hurt the farmers. 

Last year, the corn production in the US (as the world largest corn producer) was hit by the hot summer since 1955. This year, the heat continues to cover the US continent and causes the most severe drought in nearly a half-century. USDA has issued warnings since this spring and updated several forecasts about corn and soy beans crop yields. 

One thing I use this examples in my Transportation classes is to let students understand its ripple effects. What is the impact of shortage in corn supply? First intuitive answer, the corn price will go up. Here the basic economics theory -- price elasticity & availability of substitutes-- comes to play. Corn's price going up will bring the prices of other grains (soy beans, rice, wheat...) to go up too. Not only that, corn is used in many processed food that we buy in the supermarket (Read the ingredient, you will see corn syrup on many food boxes). Corn is also a major animal feed for the cattle and chickens. Cattle farmers will have to absorb more expensive animal feeds and eventually the consumers will have to pay for that. Overall, the price of the food category will go up since we cannot easily find substitutes for food (eating incests in the future?).

Return to the transportation, the corn yield drops shift the landscape of the demand and supply in a short term and the demand for transportations will be changed too. USDA issues weekly Grain Transportation Report highlight its impacts along with other economic factors (fuel prices, shipping rates...).