Agricultural production & farm supply AG BM 102 Wicker production, Poland

General Characteristics of U.S. Agriculture U.S. has about 5% of world’s people 17% of cotton 43% of corn 60% soybeans 6% of land 22% of apples Cotton

Economies of Size in Farming Larger farms can specialize more Use equipment better Spread management over more units Get better rates on shipping and purchasing For crops maximum size hit limits because of distance

Costs of producing milk by herd size

Family Farms Most farms are still family farms 48,000 PA Farms 7 have more than 10 stockholders 117 are not family corporations Corporate Farming doesn’t work very well Returns too low Hired workers don’t work as hard Hours an issue

Fixed Asset Theory – Once assets are owned they are hard to resell, so farmers will operate at a loss for many years

Biological Time Lags Volunteer Affect elasticities

Seasonality One crop per year Must ration output using storage & processing Ties prices at different times together

Unique characteristics of farm supply. Commodity products - low barriers to entry, no product differentiation Often one crop per year Perishability- strawberries, cattle - can't sit on product waiting for better price -sell it or smell it. Producers small compared to market - price takers

More unique characteristics Time lags introduce expectations- don't know price when decision is made Short-run versus long-run elasticity One crop versus all food - limited amount of land Price variability - inelastic supply and demand makes prices variable Decreasing real prices

Source: USDA

Concluding Comments Today’s class tells why agricultural business is a separate discipline Biology & structure of ag affects markets Limits choices & behavior When people from general business get involved they often don’t understand these issues & lose a lot of money