1. Lecture outline
Characteristics of ag production that make agricultural marketing different from manufacturing.
Nature of product and production
Cycle and season
Location
Farmer marketing problem

2. Characteristics of ag products
Raw material
Bulky, perishable products
Quality variation
Examples:
Fresh produce
Cattle
Grains

3. Implications for markets
Location relative to consumers
weight reducing processes
perishable
Degree of handling
assembly, sorting, grading
Price elasticity
substitutes

4. Characteristics of production
Upward trend in output
Increasing productivity
Annual variation in production
Supply and demand implications
Capacity utilization problem
Weather risk
Market risk

6. Variability in Yield and Price
Corn Soybeans
Yield Price Yield Price
Average
Std Dev
Stdev/Avg 24% 36% 17% 36%
Price is inelastic and is more volatile than supplies.

7. Seasonal variation in weight driven by the age of the cattle and weather. Upward trend in weight driven by genetics, technology, and cost factors (cost the same to slaughter and process a large carcass as a small one).

8. Seasonal and cyclical prices. More variable than weights.

9. Characteristics of production
Cyclical variation in production
Psychological lag in production
Biological lag in production
Seasonal variation in production
Grain crops
Livestock marketings

10. Time from decision to market
Beef cattle
3.5 yrs Retain heifer to slaughter steer
Hogs
1 yr Retain gilt to slaughter hog
Grains
Annual crops
Tree crops

11. Annual variation in productionS P
Cobweb
Model
Because of the time lag between production decisions and bringing product to the market, there is constant adjustment toward equilibrium. D Q

13. This graph shows the estimated profit per head in the blue line on the left axis and the percentage change from the same quarter the year before in the US breeding herd lagged 4 quarters in the red line on the right axis. The hog cycle appears to be dead if you measure it by production changes. The production cycle has dampened and the timing is not as predictable as it once was. However, if you measure the cycle by price it is alive and well. The profit changes are as wide as 30 years ago and the timing is still on schedule for a 4-year cycle.

14. Barrow and gilt prices follow a seasonal pattern
Barrow and gilt prices follow a seasonal pattern. Prices are typically highest in the summer and lowest in the fall. Seasonal patterns reflect both seasonal supply and seasonal demand. In spite of a movement of confinement technology sow productivity and thus pigs born and pork supplied still follow a seasonal difference. Summer demand for cookouts and brats at baseball games still influence demand.

15. Grain prices are seasonal due to the annual harvest and storage cost throughout the year. Note than the graph starts with the start of the marketing year, September.

16. Characteristics of production
Geographic concentration
Regional advantages
Varying cost of production
One selling price

17. US Top 10 Beef Cow States Million Beef Cows, 2005
1.43
1.72
1.01
1.90
1.55
2.16
1.09
1.07
2.05
1.00
Beef cows are widely distributed. Over 750,000 farms with cows in the US. Average size less than 40 head.
5.43
10 States 58% of Total

18. US Top 10 Cattle Feeding States
Million head on Feed, 2005
.290
.400
.920
2.47
1.10
.535
2.46
.355
.300
Much more concentrated than beef cow herds feedlots with at least 16,000 head capacity each market 60% of US fed cattle a year.
2.72
10 States 89% of Total

19. US Top 10 Corn States,
Million Bushels, 2004
1120
353
539
2244
1319
491
929
2088
432
466
10 States 84% of Total

20. US Top 10 Soybean States,
Million Bushels, 2004
236 40
497
220
207
499
287
223
111
124
10 States 81% of Total

21. US Top 10 Hog States, Million Head, 2004
6.50
16.30
2.8
1.45
3.2
4.10
1.71
2.9
9.90
2.39
Inventories listed are total hog numbers. North Carolina actually farrows more pigs than Iowa, but Iowa has more finishing hogs. Half or more of the hogs finished in Iowa are born in other states or Canada.
10 States 84% of Total

22. US Top 10 Egg States,
Million eggs, 2004
250
569
1044
272
647
531
470
289
436
420
10 States 64% of Total

23. US Top 10 Milk States,
Million pounds, 2004
451
675
1837
969
757
526
838
3038
560
500
10 States 71% of Total

24. Iowa #1 producer of Significant producer of
Corn, Soybeans, Ethanol, Hogs, Eggs
Significant producer of
Feedlot cattle #5
Beef Cows #11
Milk #12
Iowa and Illinois will be close and in first or second in corn and soybean production depending on weather.

25. Characteristics of production
Scale of production
Economies of scale
Narrow margins
Market assembly problems
Differing quality

26. Input sector Farmers are buyers and sellers
Increasing reliance on purchased inputs
Cost-price squeeze
Move to direct purchases of large volume

27. Feed and livestock (feeder animals and breeding stock) are inputs to one farmer purchased from another farmer.

28. Farmer marketing problems
Disaggregate decision making
Weather and disease risk
Inability to adjust supplies
Price takers/hard to organize
Free rider problem

29. Farmer marketing problems
Cost-price squeeze
Implications for scale
Self induced as output prices increase
Buyer market power
Changing food market efficiency
Price differentials for quality
Livestock grid marketing
Wheat protein
Component pricing of milk

30. So what? Increasing economies of scale Production and cost risk
Competition for inputs
Single selling price