Economically speaking, the buyers and users of corn are becoming less sensitive to price in making their purchasing decisions, he says. They want corn, and they’ll do whatever they can do to get it.

“The inverse of that inelastic demand curve is that as we see buyers being less sensitive to price, it means that with very small changes in supply, we see a magnified impact on price. Price is becoming much more responsive to relatively small changes in supply. That is a component of our grain marketing that is going to stay with us for a considerable period of time.”

We’ve built a grain industry around a single crop, says Welch. “Users like the production they get out of corn and the reliability they get out of utilizing corn for rations or ethanol, and that’s increasing throughout the world. That’s a major driver of the volatility we’re seeing in prices.”

In looking at prices paid to farmers for corn going back to 1866, two economic principles are very evident, says Welch.

“No. 1, a price change due to a change in demand is usually sustained for a relatively long period of time. The second principally is equally important – a price change due to a change in supply is usually short lived. There’s a great deal of volatility in this new higher average price for corn.”

Over the last several years, he says, there have been several consecutive disappointing corn crops in the United States while world corn production continues to set records.

Turning to supplies and the days of use on hand at the end of the marketing year, Welch says the U.S. is expected to rebound to the 10-year average with a 60-day supply of corn on hand on Aug. 31, 2014. This will mark the end of the 2013-2014 marketing year.

“If we make a record crop in the U.S. and record crop worldwide, we may get back to the 10-year average.”

U.S. corn-use categories have been driven by fuel use in the past several years, he says. “We’ve heard the case of increasing livestock numbers. We expect continued growth from the feed side of corn use as livestock producers have responded to more profitable conditions and increasing beef consumption in the U.S. and worldwide.”