1. Market Situation & Outlook
Interpret market factors that impact prices and resulting marketing and management decisions
Supply
Demand

2. Motivations Estimate elasticities for policy analysis
Evaluate marketing decisions
Efficient market hypothesis
Enhance competition by providing timely and relevant information
Interpret information

3. Market Situation Define current and recent past
Typically measuring change in key variables to estimate change in price

4. Short term outlook Relatively inelastic supply
Sellers willing to sell at prices less than average total cost
Relatively stable demand
Prices adjust to clear supplies

5. Intermediate term outlook
Supply and demand become more elastic
Buyers and sellers better able to react to prices

6. Long term outlook Buyers and sellers fully adjust to prices
Rely on elasticities and cost curves to estimate quantity changes

8. Short run forecast Supply is relatively inelastic
Price is a function of:
own supply
supply of substitutes
supply of complements
income
population
exports and imports
marketing margins

9. Short term outlook Use price flexibilities
The percentage change in price for a 1% change in the quantity supplied
Fpi = % Pi / % Q i

10. Own price flexibilities
Assumes all else equal
Always negative
Typically in average -2.0 to -3.0 for most ag commodities
Can differ widely when everything else is not equal

11. Cross price flexibilities
The percentage change in the price of good i resulting from a 1% change in the quantity supplied of good j
Fpij = % Pi / % Qj
Much smaller than own price flexibilities

12. Compare to another period
Typically compare to same time period one year earlier
Captures seasonal demand and marketing margin factors

13. Using Flexibilities Change in price of hogs from year before =
% pork supply ____x -3.0 = ___
+ % beef supply ____x -0.3 = ___
+ % poultry supply ____x -0.3 = ___
+ % income ____x +0.2 = ___
+ % population ____x +1.0 = ___
Total % Change ___
Price a year ago x (1-% chg) = forecast price

14. Now forecast supplies Change in supplies Demand relatively stable
Inventory reports
Biological factors
Demand relatively stable

15. Government reports Hogs and Pigs report Quarterly
Cattle on Feed Monthly
Cattle Inventory Semi-annual
Slaughter information Daily and weekly
Numbers, weights, class
Market prices Daily

16. Other impacts Imports & exports Marketing margins Seasonal patterns
Put in perspective
Marketing margins
Seasonal patterns
Cyclical patterns
Carcass weights
Productivity changes
Demand may not be stable

17. Seasonal patterns
A price pattern that repeats itself with some degree of accuracy year after year.
Supplies and demand
Often sound reasons
Widely known

18. Iowa S. Minnesota Barrow and Gilt Seasonal
Price Index
0.94
0.97
1.08
0.98
0.93
0.90
1.01
1.10
1.09
1.06
0.85
0.95
1.00
1.05
1.15
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.

19. Cyclical Pattern
A production and price pattern that repeats itself over longer than a year.
Production tied to profits
Biological lag
Hogs and Cattle

21. Market Outlook – 2000 - 01 John Lawrence and Alan Vontalge
Economics Department
Iowa State University

22. USDA Sept 2000 Hogs & Pigs Category Mil. Hd %Chg 99 All Hogs&Pigs 60.2
-1.0
Breeding Herd
6.3
-0.6
Market Hogs
53.9
Under 60#
20.0
60-119#
13.3 #
11.0
-0.7
180# & Up
9.6
-1.4

23. Sept 2000 Hogs & Pigs Pig Crop Mil. Hd. %Chg 99 Jun-Aug 25.68 -0.7
Sows Farrowing
2.90
-0.6
Sept-Nov *
2.88
+1.4
Dec-Feb ‘01*
* Intentions
2.89
+3.4

24. Increasing Productivity
June 1st Breeding herd
-4.3%
Sows Farrowing Jun-Aug
-0.6%
Pigs per Litter Jun-Aug
-0.1%
Resulted in:
Pigs Crop Jun-Aug
-0.7%
Additional weights could push pork production to above year earlier levels.

29. 2000 US Pork Trade Jan-July Exports +27.3%; Imports +21.9%
Net exports up 39.7%
Japan +13.1%
Canada +4.0%
Mexico +81.6%
Russia %
Without Russia, exports are +9.8%

33. Hog Price Forecast, Sept. 26, 2000
Quarter
Year
Ago %
Chg
Forecast
Price
Oct-Dec
34.40 -0
34-37
Jan-Mar
39.20 +0
37-40
Apr-Jun
48.20 +2
41-44
Jul-Sep
43.80 +4
36-39