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Demand-Driven Markets and the Importance of Demand Rationing

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  • Prehn, S.
  • Glauben, T.
  • Loy, J.-P.

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.
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Suggested Citation

  • Prehn, S. & Glauben, T. & Loy, J.-P., . "Demand-Driven Markets and the Importance of Demand Rationing," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 51.
    • Handle: RePEc:ags:gewipr:261854
    DOI: 10.22004/ag.econ.261854
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