“Market first, then produce the product” Chapter 3 – Agricultural Production and Marketing

What do your customers want? What do your customers want? Where and how will you sell it? Where and how will you sell it? What values and services should you add to the product? What values and services should you add to the product? What price do you need to cover your costs of production? What price do you need to cover your costs of production? What marketing functions should you perform? What marketing functions should you perform?

A look at issues related to Agricultural Production (Land Use)

A look at issues related to Agricultural Production (Productivity)

A look at issues related to Agricultural Production (Trends)

Limited resource, Retirement, Residential Farming- occupation Low-sales High-sales Large Family Farms Very Large Family Farms All Family Farms Total households (number) 1,278,740501,192165,48585,15562,199 2,092,7 72 Mean household income ($$ per household) 69,42335,86653,61770,194213,98264,465 Farm earnings ($$ per household) -4,625-2,55226,49737,182181,6605,571 Off-farm income ($$ per household) 76,25438,41727,12033,01132,32158,894 Dr. John D. Lawrence, Iowa State University

A look at issues related to Agricultural Production (Number and Sizes of Farms)

Farm Group Definitions Small family farms: Sales less than $250,000 Small family farms: Sales less than $250,000 Limited-resource, Retirement, and Residential farms Limited-resource, Retirement, and Residential farms Farming occupation farms Farming occupation farms Low sales: Sales less than $100,000 Low sales: Sales less than $100,000 High sales: Sales $100, ,000 High sales: Sales $100, ,000 Large family farms: Sales $250, ,999 Large family farms: Sales $250, ,999 Very large family farms: Sales $500,000 and up Very large family farms: Sales $500,000 and up Dr. John D. Lawrence, Iowa State University

A look at issues related to Agricultural Production (Farm Ownership)

Characteristics of Production Upward trend in output Upward trend in output Increasing productivity Increasing productivity

Characteristics of Production Cyclical variation in production Cyclical variation in production Beef cattle Beef cattle 3.5 years to retain a heifer to produce another slaughter steer 3.5 years to retain a heifer to produce another slaughter steer Hogs Hogs 1 year to retain a gilt to produce another slaughter hog 1 year to retain a gilt to produce another slaughter hog Grains? Grains? Trees? Trees?

Characteristics of Production Annual variation in production Annual variation in production Supply and demand implications Supply and demand implications Capacity utilization problem Capacity utilization problem Weather risk Weather risk Market risk Market risk

Dr. John D. Lawrence, Iowa State University

Worksheets Season Cattle and Hog Patterns

Characteristics of Production Seasonal variation in production Seasonal variation in production Grain Crops Grain Crops Hogs Hogs Dairy Dairy

Corn

Soybeans

Dr. John D. Lawrence, Iowa State University

Dairy

Characteristics of Production Geographic Concentration Geographic Concentration Regional advantages Regional advantages

US Top 10 Beef Cow States Million Beef Cows, States 58% of Total

US Top 10 Cattle Feeding States Million head on Feed, States 89% of Total

US Top 10 Corn States, Million Bushels, States 84% of Total

US Top 10 Soybean States, Million Bushels, States 81% of Total

US Top 10 Hog States, Million Head, States 84% of Total

US Top 10 Egg States, Million eggs, States 64% of Total

US Top 10 Milk States, Million pounds, States 71% of Total

Iowa #1 producer of #1 producer of Corn, Soybeans, Ethanol, Hogs, Eggs Corn, Soybeans, Ethanol, Hogs, Eggs Significant producer of Significant producer of Feedlot cattle #5 Feedlot cattle #5 Beef Cows #11 Beef Cows #11 Milk #12 Milk #12

Characteristics of Production (Varying Costs of Production) Climate Climate Costs to produce corn: Costs to produce corn: $1.07 in corn belt $1.07 in corn belt $2.24 in Southeast $2.24 in Southeast Cost to produce, excluding land costs, according to 1998 USDA study

Characteristics of Production (Varying Costs of Production) Technology Technology Track tractors Track tractors Autotrack Autotrack Biotech Biotech

Characteristics of Production (Varying Costs of Production) Farm Size Farm Size Does bigger mean lower costs? Does bigger mean lower costs?

Characteristics of Production (Varying Costs of Production) Managerial Skills Managerial Skills

Characteristics of Production (The changing farm supply industry)

Input Sector Farmers are buyers and sellers Farmers are buyers and sellers Increasing reliance on purchased inputs Increasing reliance on purchased inputs Cost prices squeeze Cost prices squeeze Movement toward direct purchases of large volume. Movement toward direct purchases of large volume.

Farmer Marketing Problems Disaggregate decision making Disaggregate decision making Weather and disease risk Weather and disease risk Inability to adjust supplies Inability to adjust supplies Price takers Price takers Hard to organize Hard to organize Free rider problem Free rider problem

Farmer Marketing Problems (continued) Cost prices squeeze Cost prices squeeze Implications for scale Implications for scale Treadmill Treadmill Buyer market power Buyer market power Price differentials for quality Price differentials for quality

How have things changed?

Marketing Alternatives

Discussion Questions Compare and contrast the economic position of a farmer to a coal mine Compare and contrast the economic position of a farmer to a coal mine How does the increasing geographical concentration of agriculture affect the cost of producing food? How does the increasing geographical concentration of agriculture affect the cost of producing food? Is it true that “All farm products are alike and buyers have no preferences”? Is it true that “All farm products are alike and buyers have no preferences”?

Discussion Questions Why don’t farmers perform more marketing functions? Why don’t farmers perform more marketing functions? Why are farmers purchasing an increasing share of their supplies from off farm? Why are farmers purchasing an increasing share of their supplies from off farm? How have farm input suppliers adjusted to the changing farm structure? How have farm input suppliers adjusted to the changing farm structure?