The vast majority of corn and soybeans produced in the United States is grown in the Midwestern states including: Nebraska, Iowa, Illinois, Indiana, and Ohio. This region experienced severe drought during the growing season. Some of the effects of the drought on corn and soybean production are detailed in the cover page summary of a US Department of Agriculture Crop Production Report published August 10, 2012 (see below). In addition, a video of an interview with an agricultural economist, Dr. Bruce Babcock, discusses some issues that are a consequence of the drought.
Based on information contained in the US Department of Agriculture Crop Production Report and the interview of Dr. Bruce Babcock, discuss the likely effects the drought will have on the corn and soybean markets. Specifically, based on your knowledge of supply and demand models, discuss the effects the drought will have on corn and soybean equilibrium quantities and prices.
There are proposals to temporarily remove the mandatory use of ethanol in gasoline (Renewable Fuels Standard). The video discusses some of the issues.
Based on your knowledge of supply and demand models, explain how temporary removal of the mandatory use of ethanol in gasoline would affect the corn market, given the US Department of Agriculture production forecast? Explain how other related markets might also be impacted.
Hint: It may be useful to graph these scenarios before writing your answer. Please do not include your graph in your submission, but describe the results in your written analysis. Imagine you are preparing your analysis for a local news report where the audience is not likely to be familiar with supply and demand analysis (models).