characteristics of ag products u raw material u bulky, perishable products u quality variation u...

Characteristics of ag productsCharacteristics of ag products

Raw materialRaw material Bulky, perishable productsBulky, perishable products Quality variationQuality variation Examples:Examples:

Fresh produceFresh produceCattleCattleGrainsGrains

Implications for marketsImplications for markets Location relative to consumersLocation relative to consumers

weight reducing processesweight reducing processes perishableperishable

Degree of handlingDegree of handling assembly, sorting, gradingassembly, sorting, grading

Price elasticityPrice elasticity substitutessubstitutes perishableperishable

Characteristics of productionCharacteristics of production

Upward trend in outputUpward trend in output Increasing productivityIncreasing productivity

Annual variation in productionAnnual variation in productionSupply and demand implicationsSupply and demand implicationsCapacity utilization problemCapacity utilization problemWeather riskWeather riskMarket riskMarket risk

U.S. CORN YIELD 1866-2000

0

20

40

60

80

100

120

140

160

18661876188618961906191619261936194619561966197619861996

BU

/AC

RE

Variability in Yield and PriceVariability in Yield and Price

Corn Corn SoybeansSoybeans

YieldYield PricePrice YieldYield PricePriceAverageAverage 97.3597.35 1.941.94 29.9829.98 4.944.94

Std DevStd Dev 23.0423.04 0.700.70 5.005.00 1.791.79

Stdev/AvgStdev/Avg 24%24% 36%36% 17%17% 36%36%

Weekly Average Steer Carcass Weights

690

710

730

750

770

790

810

830

850Ja

n-9

2

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Average 782Std Dev 26CV 3%

Texas-OK Live Steer Prices

$55

$65

$75

$85

$95

$105

$115Ja

n-9

2

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Average 70.01Std Dev 7.31CV 10%


Cyclical variation in productionCyclical variation in productionPsychological lag in productionPsychological lag in productionBiological lag in productionBiological lag in production

Seasonal variation in productionSeasonal variation in productionGrain cropsGrain cropsLivestock marketingsLivestock marketings

Time from decision to marketTime from decision to market

Beef cattleBeef cattle3.5 yrs Retain heifer to slaughter steer3.5 yrs Retain heifer to slaughter steer

HogsHogs1 yr Retain gilt to slaughter hog1 yr Retain gilt to slaughter hog

GrainsGrainsAnnual cropsAnnual crops

Tree crops Tree crops

Annual variation in productionAnnual variation in production

S

D

Cobweb

Model

P

Q

U.S. Cattle Inventory

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1,00

0 H

ead

ISU Estimated Farrow-Finish Returns & Change in 10 State Breeding Herd Lagged One Year

-60

-40

-20

0

20

40

60

80

Dec

-73

Dec

-75

Dec

-77

Dec

-79

Dec

-81

Dec

-83

Dec

-85

Dec

-87

Dec

-89

Dec

-91

Dec

-93

Dec

-95

Dec

-97

Dec

-99

$/H

ead

-25-20

-15-10-5

051015

2025

Per

cen

t C

han

ge

Returns Breeding Herd

Iowa S. Minnesota Barrow and Gilt Seasonal Price Index

0.94

0.97

1.08

0.98

0.97

0.98

0.93

0.90

1.01

1.101.091.06

0.85

0.90

0.95

1.00

1.05

1.10

1.15

Monthly Average Iowa Corn Prices, 1979-

80 Through 1999-00 Marketing Years

1.50

1.70

1.90

2.10

2.30

2.50

2.70

SEPOCTNOVDECJANFEBMARAPRMAYJUNJULAUG

Monthly Iowa Corn Price Declines, 1979-80 Through 1999-00 Marketing years

0%

10%

20%

30%

40%

50%

60%

70%

80%

Sep.-O

ct.

Oct.-N

ov.

Nov.-D

ec.

Dec.-J

an.

Jan.-F

eb.

Feb.-M

ar.

Mar

.-Apr.

Apr.-M

ay

May

-Jun

Jun-J

ul

Jul.-

Aug.

Aug.-Sep

.

Percent of time Prices Declined


Geographic concentrationGeographic concentrationRegional advantagesRegional advantages

Varying cost of productionVarying cost of productionOne selling priceOne selling price

US Top 10 Beef Cow States

Million Beef Cows

5.47

2.07

1.91

1.52

1.95

1.81

1.53

1.061.04

1.00

10 States 58% of Total

US Top 10 Cattle Feeding States

Million head on Feed, 2002

.9552.37

2.53

2.89

1.21

.365

.335

.305

.480

.355


US Top 10 Corn States,

Million Bushels, 2002

1904927

2861559

270

617277

333 3641061


US Top 10 Soybean States,

Million Bushels, 2002

490179

82

424

153

233148

125

102

311


US Top 10 Hog States,

Million Head, 2002

15.302.90

1.534.05

2.95

3.15

9.60

1.44

2.49

5.90


US Top 10 Egg States,

Million eggs, 2001

797

282444

682

246

503

552

529

424

263


US Top 10 Milk States,

Million pounds, 2001

1837

490

456

483656972

912

2794

429

738


IowaIowa

#1 producer of#1 producer ofCorn, Soybeans, Hogs, EggsCorn, Soybeans, Hogs, Eggs

Significant producer ofSignificant producer ofFeedlot cattle #5Feedlot cattle #5Beef Cows #11Beef Cows #11Milk #12Milk #12


Scale of productionScale of productionEconomies of scaleEconomies of scaleNarrow marginsNarrow marginsMarket assembly problemsMarket assembly problemsDiffering qualityDiffering quality

Input sectorInput sector

Farmers are buyers and sellersFarmers are buyers and sellers Increasing reliance on purchased Increasing reliance on purchased

inputsinputs Cost-price squeezeCost-price squeeze Move to direct purchases of Move to direct purchases of

large volumelarge volume

Percent of Input purchases

Feed14%

Supplies, repairs

10%

Chemicals Fert.14%

Farm Service14%

Int & Taxes10%

Rent10%

Machinery6%

Labor10%

Livestock9%

Fuel3%

Farmer marketing problemsFarmer marketing problems

Disaggregate decision makingDisaggregate decision making Weather and disease riskWeather and disease risk Inability to adjust suppliesInability to adjust supplies Price takers/hard to organizePrice takers/hard to organize Free rider problemFree rider problem

Farmer marketing problemsFarmer marketing problems Cost-price squeezeCost-price squeeze

Implications for scaleImplications for scaleSelf induced as output prices increaseSelf induced as output prices increase

Buyer market powerBuyer market power Changing food market efficiencyChanging food market efficiency Price differentials for qualityPrice differentials for quality

Livestock grid marketingLivestock grid marketingWheat proteinWheat proteinComponent pricing of milkComponent pricing of milk

So what?So what?

Increasing economies of scaleIncreasing economies of scale Production and cost riskProduction and cost risk Competition for inputsCompetition for inputs Single selling priceSingle selling price

Consumer TrendsConsumer Trends

Consumer is king/queenConsumer is king/queen Increasingly affluentIncreasingly affluent Time starvedTime starved Product differentiationProduct differentiation

Away from commoditiesAway from commoditiesToward specific productsToward specific products

Changing DemographicsChanging Demographics

19701970 1990199019971997

Households MHouseholds M 63 63 93 93101101

1-2 people %1-2 people % 46 46 57 576060

Female head MFemale head M 5.6 5.6 10.9 10.912.812.8

Both work %Both work % 41 41 58 586262

Pop. <18 yearsPop. <18 years 3434 28282626

Pop >64 yearsPop >64 years 1010 11111313

Food Expenditures and Share of Disposable Income on Food

$-

$100

$200

$300

$400

$500

$600

$700

$800

1960 1965 1970 1975 1980 1985 1990 1995 2000

$B

illio

n

0

2

4

6

8

10

12

14

16

18

20

Pe

rce

nt

Expenditures Disposal Income on Food

Food Expenditures, Home and Away

0

200

400

600

800

1000

1200

1400

1960 1965 1970 1975 1980 1985 1990 1995 2000

$B

illio

n

At Home Away from Home

Food Sales, 2001Food Sales, 2001

$Billion$Billion Chg Chg ’00’00

At HomeAt Home 437.0437.0+3.0%+3.0%

Away from homeAway from home 366.0366.0+4.9%+4.9%

So what???So what???

Increasing Increasing Consumer incomeConsumer income2 income homes2 income homes1-2 person households1-2 person householdsAge of consumersAge of consumers

What does it imply forWhat does it imply forThe food marketing bill?The food marketing bill?Farmers?Farmers?

characteristics of ag products u raw material u bulky, perishable products u quality variation u...

Documents