How Is the Price of Corn Determined?


Quick Answer

The price of corn is determined by the amount of supply relative to the amount of demand and is influenced by government subsidies. When the supply is greater than the demand for something, then prices drop. When the demand exceeds the supply, then prices rise.

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Full Answer

The major sources of demand for corn include animal feed, exportation, human food and ethanol production. Corn is a staple ingredient in many types of animal feed, and about 35 percent of corn production goes for this purpose. Ethanol is becoming more prevalent in American fuel sources, such as gasoline, as of 2015.

The major sources of supply for corn include leftover stock from the prior year, domestic production and international imports. Domestic production accounts for a large portion of the American supply of corn, averaging between 10 and 14 billion bushels from 2003 to 2013.

Government subsidies are another factor in determining the price of corn. The U.S. government offers subsidies for certain staple crops, including corn, to encourage farmers to grow those crops. These subsidies in turn gives more farmer an incentive to grow corn, which increases the overall supply. Regardless of how good the growing season is, farmers can count on receiving a certain minimum payment for their crops.

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