What producers think will happen to prices in the future really affects what they do now. They often change how much they make based on what they expect those prices to be.
Price Expectations
If producers believe prices will go up, they might hold back on how much they sell now. This way, they can sell for more later on. This can cause the current supply to drop.
Optimal Production Levels
For example, if producers think prices will increase by $10, they might decide to cut their current supply by 15%. They do this to try and make the most money.
Statistical Impact
Looking at past data, we see that when commodity prices rise by $5, there’s usually a 10% drop in the amount that producers supply right away. This means they are carefully choosing when to enter the market.
What producers think will happen to prices in the future really affects what they do now. They often change how much they make based on what they expect those prices to be.
Price Expectations
If producers believe prices will go up, they might hold back on how much they sell now. This way, they can sell for more later on. This can cause the current supply to drop.
Optimal Production Levels
For example, if producers think prices will increase by $10, they might decide to cut their current supply by 15%. They do this to try and make the most money.
Statistical Impact
Looking at past data, we see that when commodity prices rise by $5, there’s usually a 10% drop in the amount that producers supply right away. This means they are carefully choosing when to enter the market.