16278_3.30_000008298716XSmall

Cotton or Corn?

Mar 30, 2011 • Demand, Supply, and Markets, Developing Economies, Households, International Trade and Finance • 115 Views    No Comments

One farmer told the NY Times, “It’s going to be cotton stalks everywhere.”

With cotton prices soaring, acreage in Texas and other Southern states that had been used for wheat or corn now has cotton growing. 

The result? A smaller increase in the U.S. corn and wheat crops; and much more cotton. The Times calls it an “acreage war” between the crops that clothe us and those that feed us.

The Economic Lesson

This is classic supply and demand. For cotton, the increase in supply will eventually push price down. Meanwhile, for corn and wheat, as supply is less than it would have been, price remains elevated.

On the demand side, with these supply curves moving, the quantity demanded will change. For cotton, the search has begun for alternative fabrics. And, as we previously noted, when crops get higher prices, so too does the land on which they are grown.

Consequently, even corn farmers are happy that cotton’s price is high.

Related Posts

« »