MARKETING FUNCTIONS

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

TRANSPORTATION STORAGE PROCESSING

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

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

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

TRANSPORTATION PROVIDES PLACE UTILITY

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

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

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

COST DISTANCE

COST DISTANCE 1 ST CLASS MAIL TRUCK RAIL BARGE

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

SITE PRICE LINE PRICE DISTANCE MARKET PRICE TERMINAL COST

SITE PRICE LINE MARKET AMARKET B BOUNDARY

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

SITE PRICE LINE DISTANCE SP1 SP2 CHANGE IN MARKET PRICE

MARKET AMARKET B BOUNDARY CHANGE IN TRANSPORT COST

PROCESSING CHANGES THE FORM OF THE PRODUCT.

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

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

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

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

STORAGE: TWO TYPES - WORKING INVENTORY - SEASONAL STORAGE

SEASONAL STORAGE FUTURE PRICE - CURRENT PRICE > STORAGE COST

SEASONAL STORAGE FUTURE PRICE - CURRENT PRICE > STORAGE COST

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

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

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

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

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

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

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

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

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

DEMAND SUPPLY PRICE

DEMAND SUPPLY PRICE Cost of Storage

DEMAND SUPPLY PRICE Cost of Storage

Exchange Function BUYING (PROCUREMENT) SELLING (MERCHANDISING)

Exchange Function BUYING (PROCUREMENT) OPEN MARKET

BUYING (PROCUREMENT) OPEN MARKET NOT VERY EFFICIENT

FACILITATING FUNCTIONS STANDARDIZATION MARKET INTELLIGENCE FINANCING RISK BEARING

STANDARDIZATION

MARKET INTELLIGENCE GOVERNMENT AGENCIES USDA US DEPARTMENT OF COMMERCE TREASURY DEPARTMENT

MARKET INTELLIGENCE

RISK BEARING Physical Risk

Risk Bearing

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

Structure of Agricultural Marketing

LOCATION OF AGRIBUSINESS FIRMS

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.

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

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

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

CONCENTRATION IN AGRICULTURAL MARKETING

THE MARKET SHARE OF THE LARGEST FEW FIRMS

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

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

Why is concentration happening?

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