Price-Supply Feedback Loop with Time Lag

“Governments can also influence the prices of agricultural commodities and differentials between the prices of different origins. At the time of writing, the trade dispute between China and the U.S. has increased the price of Brazilian soybeans relative to the price of U.S. beans. Events can also impact price. For example, the outbreak of African Swine Fever in China has reduced Chinese demand for animal feed and had a significant impact on the world’s import demand for soybeans. However, the most important factor that affects the supply and demand of a commodity is the price of the commodity itself, both in outright terms and relative to alternative, competing crops. This leads to a circular situation where the price of a certain commodity will depend on its supply and demand, while the supply and demand depend, at least partially, on its price. This is a feedback loop with a time lag; the length of that time lag depends on which commodity you are discussing.”

“‘The best cure for high prices is high prices – and the best cure for low prices is low prices’.”