It has been a tough year in the poultry business, with supply outpacing demand a

Question

It has been a tough year in the poultry business, with supply outpacing demand and feed-grain prices rising substantially. But producers are hoping all that                changes when the summer cook-out season starts.
                The seasonal upswing in chicken consumption, along with the anticipated jump in spot-market poultry prices, could bring some relief to producers whose profit                margins have been slashed by surging corn and soybean-meal costs.
                Rising feed-grain prices, accelerated by the diversion of corn to make ethanol, have pushed up the cost of producing a live chicken by as much as 65% over the past                two years.
                Three factors make analysts more optimistic:
                Companies are cutting production, weekly egg-set numbers are declining (egg sets are fertile eggs placed in incubators), and prices are responding positively to                the decreasing supply.
                The production slowdown is a response to the surge in feed-grain prices last fall.
                Profit margins at producers will not improve unless spot-market prices for chicken move up fast enough to cover costs paid for corn and soybean meal to feed                chicken flocks.
                Production cutbacks and seasonal demand have helped fuel a 20-cent increase in boneless, skinless breast-meat prices to $1.46 a pound. Prices are expected to reach                at least $1.80 by summer 2008.
a. Use demand and supply analysis to illustrate the changes in chicken prices described in the above article.
                

Explanation / Answer

It is metioned that the producers are expecting the demand for chicken to rise when the summer cook-out season starts. At the same time, the supply of chicken is going to decrease owing to lower production by producers. This Lowering of production is because of a rise in the price of poultry feed. Increasing use of corn to produce ethanol has dwindled the supply of corn for poultry feed leading to rise in the price of poultry feed which will lead to reduced supply of chicken. This increase in demand and reduction in supply of chicken will lead to rise in the price of chicken. This is evident as it is mentioned that Production cutbacks and seasonal demand have helped fuel a 20-cent increase in boneless, skinless breast-meat prices to $1.46 a pound & the prices are expected to reach $1.80 by summer when demand will be at its peak.

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