Friday, November 4, 2011
What happens when wheat prices rise?
Markets respond to incentives. Higher prices mean rationing on the demand side. Higher prices will cause more supply to be produced. What happens next? prices fall form the over supply. Look at the wheat market. Prices are the lowest in years and have declined form over $10 / bu in March to current prices of $6.36 /bu.
Stocks are rising after what seemed like a crisis last year. Production is outstripping consumption so the price of wheat has come down to a new equilibrium level.
See International Grains Council