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MARKETING FUNCTIONS. THE MOST VISIBLE AND GENERALLY THE MOST COSTLY PART OF AGRICULTURAL MARKETING ARE THE PHYSICAL FUNCTIONS.

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Presentation on theme: "MARKETING FUNCTIONS. THE MOST VISIBLE AND GENERALLY THE MOST COSTLY PART OF AGRICULTURAL MARKETING ARE THE PHYSICAL FUNCTIONS."— Presentation transcript:

1 MARKETING FUNCTIONS

2 THE MOST VISIBLE AND GENERALLY THE MOST COSTLY PART OF AGRICULTURAL MARKETING ARE THE PHYSICAL FUNCTIONS.

3 TRANSPORTATION STORAGE PROCESSING

4 TRANSPORTATION: MOVING PRODUCTS TO THE LOCATION WHERE THEY ARE WANTED.

5 TRANSPORTATION AN IMPORTANT COST OF MARKETING FOOD REGIONAL SPECIALIZATION IN FOOD PRODUCTION

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7 TRANSPORTATION AN IMPORTANT COST OF MARKETING FOOD REGIONAL SPECIALIZATION IN FOOD PRODUCTION POPULATION IS CONCENTRATED ON THE COAST

8 TRANSPORTATION PROVIDES PLACE UTILITY

9 Prices direct the flow of products. Price of corn Heyworth, Illinois = $5.40/bu Decatur, Illinois = $5.48/bu Pekin, Illinois = $5.51/bu New Orleans = $5.82/bu

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11 WHAT FACTORS INFLUENCE THE DIRECTION THAT GRAIN FLOWS? PRICE AT MARKET TERMINAL COST COST OF TRANSPORT

12 SITE PRICE = MARKET PRICE – (TERMINAL COST + ( TRANSPORT RATE * DISTANCE))

13 COST DISTANCE

14 COST DISTANCE 1 ST CLASS MAIL TRUCK RAIL BARGE

15 SITE PRICE = MARKET PRICE - ( (TERMINAL COST + ( TRANSPORT RATE * DISTANCE)) SITE PRICE = $ (.04 + (.005 * 50)) = $3.86

16 SITE PRICE LINE PRICE DISTANCE MARKET PRICE TERMINAL COST

17 SITE PRICE LINE MARKET AMARKET B BOUNDARY

18 PRICE DISTANCE MARKET PRICE TERMINAL COST INCREASE IN TRANSPORT RATE SP1 SP2

19 SITE PRICE LINE DISTANCE SP1 SP2 CHANGE IN MARKET PRICE

20 MARKET AMARKET B BOUNDARY CHANGE IN TRANSPORT COST

21 PROCESSING CHANGES THE FORM OF THE PRODUCT.

22 PROCESSING: CONSUMERS ARE DEMANDING MORE FORM UTILITY BE ADDED TO THEIR PRODUCTS

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28 CONSUMERS WANT CONVENIENCE AND VARIETY FOODS THAT WILL STORE FOR A LONG TIME BUT CAN BE QUICKLY PREPARED

29 814 | $ oz. steaks, 1.5 lbs. $10.32/lb Kroger's -- $5.49/lb

30 STORAGE PROVIDES TIME UTILITY: THE GOOD IS AVAILABLE WHEN CONSUMERS DEMAND IT.

31 STORAGE: TWO TYPES - WORKING INVENTORY - SEASONAL STORAGE

32 SEASONAL STORAGE FUTURE PRICE - CURRENT PRICE > STORAGE COST

33 SEASONAL STORAGE FUTURE PRICE - CURRENT PRICE > STORAGE COST

34 Two Cost of Seasonal Storage 1) Physical Cost Buildings, Maintenance 2) Opportunity Cost Wealth in grain vs. wealth in money

35 COMMERCIAL STORAGE: COMMON COST SYSTEM FLAT FEE TO JAN 1 THEN CENTS/BU/PER MONTH THEREAFTER

36 EXAMPLE : $.13/BU TO JANUARY 1, THEN $.0225/BU/MONTH

37 EXAMPLE : $.13/BU TO JANUARY 1, THEN $.0225/BU/MONTH October 1 to June 30 $.13 + ($.0225*6) = $.26 1/2/bu

38 OPPORTUNITY COST PRICE OF THE COMMODITY COST OF MONEY THE TIME THE COMMODITY IS STORED

39 OPPORTUNITY COST = (PRICE * COST OF MONEY* FRACTION OF YEAR GRAIN IS STORED)

40 EXAMPLE: PRICE OF CORN = $3.10 COST OF MONEY =.08% STORAGE FROM OCT 1 TO MARCH 1 ( 5 MONTHS)

41 (3.10 *.08 * 5/12) = $.10/BU

42 Click here to refresh data Corn Futures ContractMonthLastChgOpenHighLow CORN Mar '09 375'4 4'2370'6377'0369'6 CORN May '09 385'6 4'2381'0387'2380'0 CORN Jul '09 396'0 4'4391'0397'4390'2 CORN Sep '09 406'2 4'6401'4407'0401'4 CORN Dec '09 418'4 3'2414'6420'2414'0 CORN Mar '10 431'0 2'0428'0431'0428'0 CORN May '10 436'2y CORN Jul '10 445'0 3'2445'0 CORN Sep '10 437'0y CORN Dec '10 436'0 3'6432'0436'0432'0 CORN Jul '11 451'6y CORN Dec '11 445'0 2'6445'0

43 DEMAND SUPPLY PRICE

44 DEMAND SUPPLY PRICE Cost of Storage

45 DEMAND SUPPLY PRICE Cost of Storage

46 Exchange Function BUYING (PROCUREMENT) SELLING (MERCHANDISING)

47 Exchange Function BUYING (PROCUREMENT) OPEN MARKET

48 BUYING (PROCUREMENT) OPEN MARKET NOT VERY EFFICIENT

49 FACILITATING FUNCTIONS STANDARDIZATION MARKET INTELLIGENCE FINANCING RISK BEARING

50 STANDARDIZATION

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52 MARKET INTELLIGENCE GOVERNMENT AGENCIES USDA US DEPARTMENT OF COMMERCE TREASURY DEPARTMENT

53 MARKET INTELLIGENCE

54 RISK BEARING Physical Risk

55 Risk Bearing

56 RISK BEARING Market or Price Risk “Inventory and variable and unknown prices”

57 Structure of Agricultural Marketing

58 LOCATION OF AGRIBUSINESS FIRMS

59 SOME ARE "SUPPLY ORIENTED" IF THE UNPROCESSED AGRICULTURAL COMMODITIES ARE BULKY AND PERISHABLE - THE PROCESSING IS LIKELY TO TAKE PLACE CLOSE TO THE PRODUCTION AREA.

60 A FRUIT OR VEGETABLE CANNER IS LIKELY TO LOCATE NEAR THE GROWING AREAS

61 MEAT PACKERS TEND LOCATE IN THE AREAS WERE LIVESTOCK ARE PRODUCED SAVES ON TRANSPORTATION SHRINKAGE

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63 SOME FIRMS ARE MARKET ORIENTED BREAD BAKING -- FINISHED PRODUCT IS PERISHABLE COTTON MILLING

64 CONCENTRATION IN AGRICULTURAL MARKETING

65 THE MARKET SHARE OF THE LARGEST FEW FIRMS

66 THE MARKET SHARE OF THE LARGEST FEW FIRMS A HIGH LEVEL OF CONCENTRATION THE GREATER THE FIRMS INTERDEPENDENCE IN MARKETING STRATEGIES

67 A CONCENTRATION RATIO NORMALLY INDICATES THE PERCENTAGE OF INDUSTRY SALES CONTROLLED BY THE FOUR LARGEST FIRMS

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70 Why is concentration happening?

71 SHOULD PRODUCERS AND CONSUMERS BE CONCERNED ABOUT CONCENTRATION IN THE AGRICULTURAL MARKETING SYSTEM?


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