Commodity Marketing Activity Chapter #2

Supply and Demand Supply: quantity of a commodity the producers are willing to provide at a given price If prices are low, producer can keep their product Law of Supply: relationship between supply and price

Law of Supply

Supply Grain Supply: carryover stocks, current production, expected production weather yields amount in storage government programs exports & imports Livestock Supply: current production only feed and feeder costs

Changes in Supply

Demand Quantity of a commodity that the buyers are willing to purchase at a given price Law of Demand: relationship between demand and price Prices are high, buyers buy less

Law of Demand

Change in Demand

Factors Affecting Demand Consumer Tastes Income Population Size Price of Substitution Goods Consumers will substitute other meats if beef is too high

Market Price When quantity supplied equals quantity demanded = market price (equilibrium price) When Supply line crosses Demand line

Market Price

Shift in Supply Affects Market Price

Factors Affecting Market Price Supply factors production costs government programs exports & imports price Demand factors consumer tastes income population price of substitution goods market price influences consumption

Factors Affecting Market Price How will the market price be affected if: Supply increases, Demand is the same? Supply decreases, Demand is the same? Supply stays the same, Demand increases? Supply stays the same, Demand decreases?

Carryover Projected corn usage = 7 billion bu Carryover stocks = 7 billion bu. All production would be carryover Prices will fall Projected corn usage = 7 billion bu. Carryover stocks = 2 billion bu. Projected useage = 9 billion bu. No corn left, prices rise drastically

Carryover Compare carryover to prices of previous years Carryover = 2 bill. Bu. & Production = 8 bill. Bu., then carryover = 25% Look at years where carryover was 20-30%, this will give you a good idea what to expect prices to be These numbers released regularly from the U.S. Dept. of Agriculture Table Page 16

Important Fundamentals for Corn Acreage and yields Moisture & temp in July & Aug Livestock on Feed Exports U.S. dollar exchange rate weak U.S. dollar = foreigners can buy more

Important Fundamentals for Wheat Growing conditions Winter Snow cover in winter Spring wheat Exports

Important Fundamentals for Soybeans Soybean Meal (animal & people food) Oil (edible oil products & industry) Crush Margin = cost of soybeans to value of resulting oil and meal

World Crop Supply World Crop Supply Produced by the U.S. in 1989 Corn 41% Wheat 10% Soybeans 49% U.S. Crop Production Exported to Foreign Countries in 1989 Corn 28% Wheat 62% Soybeans 30%

Livestock Fundamentals No carryover stocks Cattle on Feed Report (p. 18) Consumption patterns High Feed Prices = Producers lower herd size (slaughter females) = Increases supply long run will decrease supply As Livestock prices rise, producers increase herd size which increases supply which lowers prices This cycle repeats (9-16 years) (12 yr. Avg.)

Livestock Fundamentals Seasonal Pattern cattle supply for slaughter is lower in spring, raises in late summer and fall Hog prices follow a 4 yr cycle (p. 19) Hog demand related to price of beef high beef prices = increased pork consumption