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Honored Advisor

Re: So, The USDA knocked over 1 billion bushels off of the corn demand side of things......

c-x-1,

 

I am poking fun to a degree, but I disagree with the idea that lack of supply and high price will stop demand as usda implies.  Or that supply cannot be negative.    Demand may be fed by another substitution product for a while and the pens or plant may set idle waiting.  But that does not mean demand is not present.  Trade volume is not an indicator of demand, but does get smaller as price rises.   

Demand is gone when there is ample supply and no bids(price).  Otherwise there is always demand if there is a price offered.

 

Why would usda assume there can't be negative supply.  At one time I would have never thought we would need to import clothing or cars in large volumes but now we do.  We import products because our domestic production does not supply our demand.  Causes are varied, but it is possible to use more grain and have more demand than production.

 

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Frequent Contributor

Re: So, The USDA knocked over 1 billion bushels off of the corn demand side of things......

Right. I'd just like to add that 'demand destruction' is perhaps a misrepresentation, or at least a catchier way of saying that demand weakens as prices rise. Of course there is still some demand, but at what price? If demand is defined (roughly) as needed goods, then those goods are still needed, just maybe not at the price they are today. If the buyer decides not to buy today, then he can hope to buy later at a lower price. Or perhaps he has to buy later at a higher price, or instead makes do with purchasing a closely related substitute to get by. All the demand is not really instantly created or destroyed. It's more accurate to say that demand has an inverse trend relationship with price. Not as catchy though. 

 

 

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Honored Advisor

Re: So, The USDA knocked over 1 billion bushels off of the corn demand side of things......

Yes Ragweed,

 

They say demand when they mean consumption.  "Demand reduction" is more effective than "lower consumption".

 

A subtle difference, but an obvious choice of words from an organization that claims they don't want to have effect on the market.

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Senior Advisor

Re: So, The USDA knocked over 1 billion bushels off of the corn demand side of things......

Very good points by all. However, food demand is basically inelastic. Food demand and supply does NOT follow the industrial model of widgets (as the price goes up less is sold until none is sold). The main reasons are life necessity of food and the seasonal production of food that is uncertain. Add to that food is strongly cultural - especially for the basic necessities. The poorest societies with the most at risk make supply the TOP priority. Why? Because societies start coming apart when food supplies falter. China and Egypt are good examples, though different from each other in many respects. Food is a national security issue. We tend not to think of it that way because of our fortunate history and location. Other nations, by and large, take it very seriously.

 

Niether corn nor beans are very spendy at this point in real $$ as compared to the 70's. Food is still very cheap. But it can be big trouble. Subsitutions will be made for animals, but not so easily for humands unless it is a matter of extremes. At that point governments fall and chaos becomes a bigger influence. 

 

We're not going there this year. But we are in the danger zone again. 2007-8 was predictable. Too much was taken for granted.

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Advisor

Re: So, The USDA knocked over 1 billion bushels off of the corn demand side of things......

Yes, I would agree.  A potential buyer, though hesitant at one point to pull the trigger, thinking he still needs it but at a lower price, may also discover he's out of inventory in 60 days and needs to readjust his market realities to reflect growing tighter supplies.  Can he get along without it for the time being or will he lose his edge in the marketplace where he makes his money? This is a fluid decision making process.  Not always a black and white answer.  His answer may be no but may soon change if his business conditions change. 

 

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