Demand Driven Markets and the Importance of Demand Rationing

Sören Prehn, Thomas Glauben and Jens-Peter Loy

No 209198, 55th Annual Conference, Giessen, Germany, September 23-25, 2015 from German Association of Agricultural Economists (GEWISOLA)

Abstract: Whenever supply falls short or actual consumption rates exceed projected consumption rates grain markets call for demand rationing. In recent years, in particular high demand made demand rationing more than once necessary. Here, we develop a theory of how demand rationing functions. Theory implies that agricultural futures markets not only fulfill a hedging and information function but also a market coordination function. Speculators always have a rational economic incentive to bring demand down to fit with supply conditions. Empirical evidence for the US corn market emphasizes the importance of demand rationing for the functioning of grain markets.

Keywords: Agricultural Finance; Demand and Price Analysis; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 15
Date: 2015
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Journal Article: Demand-Driven Markets and the Importance of Demand Rationing (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:gewi15:209198

DOI: 10.22004/ag.econ.209198

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