Grains and Oilseeds
This chapter covers corn, soybeans, and wheat—two grains and a legume grown for its oil, meal, and beans. All three are among the largest agricultural commodities markets in the world. Each is an annual crop, planted new each year. As such, these crops differ in an important way from some of the tropical agricultural crops discussed in the previous chapter. The fact that these crops, like cotton, are newly planted every year means that farmers have much greater flexibility in responding to changes in demand and price. Farmers are able to switch crops from year to year in response to shifts in demand, anticipated changes in demand, and price expectations.
As a result, these crops will trade off of each other. In a given year, higher corn prices might lead farmers to plant greater acreage in corn, at the expense of soybeans, cotton, or even wheat. The reduction in plantings of those crops will then lead investors and food processors to buy some of them in the futures or forward markets, in the expectation that the reduced production will push prices higher later. Similarly, weak prices in one crop can lead to weak prices in other crops, as farmers shift to them in search of increased revenue per acre. Government subsidy programs distort the markets for these crops, but these underlying relationships still apply, although government interference reduces the free market capacity for supply, demand, and price to interact.
Corn is the single largest grain ...