Commodity Marketing Activity

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Commodity Marketing Activity

• Chapter 2

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Supply and Demand

• Supply quantity of a commodity the producers are
  willing to provide at a given price
• If prices are low, producer can keep their
  product
• Law of Supply relationship between supply and
  price

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Law of Supply
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Supply

• Grain Supply carryover stocks, current
  production, expected production
• weather
• yields
• amount in storage
• government programs
• exports imports
• Livestock Supply current production only
• weather
• feed and feeder costs
• exports imports

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Changes in Supply
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Demand

• Quantity of a commodity that the buyers are
  willing to purchase at a given price
• Law of Demand relationship between demand and
  price
• Prices are high, buyers buy less

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Law of Demand
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Change in Demand
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Factors Affecting Demand

• Consumer Tastes
• Income
• Population Size
• Price of Substitution Goods
• Consumers will substitute other meats if beef is
  too high

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Market Price

• When quantity supplied equals quantity demanded
  market price (equilibrium price)
• When Supply line crosses Demand line

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Market Price
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Shift in Supply Affects Market Price
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Factors Affecting Market Price

• Supply factors
• production costs
• government programs
• exports imports
• price

• Demand factors
• consumer tastes
• income
• population
• price of substitution goods
• market price influences consumption

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Factors Affecting Market Price

• How will the market price be affected if
• Supply increases, Demand is the same?
• Supply decreases, Demand is the same?
• Supply stays the same, Demand increases?
• Supply stays the same, Demand decreases?

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Carryover

• Projected corn usage 7 billion bu
• Carryover stocks 7 billion bu.
• All production would be carryover
• Prices will fall
• Projected corn usage 7 billion bu.
• Carryover stocks 2 billion bu.
• Projected useage 9 billion bu.
• No corn left, prices rise drastically

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Carryover

• Compare carryover to prices of previous years
• Carryover 2 bill. Bu. Production 8 bill.
  Bu., then carryover 25
• Look at years where carryover was 20-30, this
  will give you a good idea what to expect prices
  to be
• These numbers released regularly from the U.S.
  Dept. of Agriculture
• Table Page 16

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Important Fundamentals for Corn

• Acreage and yields
• Moisture temp in July Aug
• Livestock on Feed
• Exports
• U.S. dollar exchange rate
• weak U.S. dollar foreigners can buy more

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Important Fundamentals for Wheat

• Growing conditions
• Winter
• Snow cover in winter
• Spring wheat
• Exports

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Important Fundamentals for Soybeans

• Soybean Meal (animal people food)
• Oil (edible oil products industry)
• Crush Margin cost of soybeans to value of
  resulting oil and meal

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World Crop Supply

• World Crop Supply Produced by the U.S. in 1989
• Corn 41
• Wheat 10
• Soybeans 49

• U.S. Crop Production Exported to Foreign
  Countries in 1989
• Corn 28
• Wheat 62
• Soybeans 30

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Livestock Fundamentals

• No carryover stocks
• Cattle on Feed Report (p. 18)
• Consumption patterns
• High Feed Prices Producers lower herd size
  (slaughter females) Increases supply
• long run will decrease supply
• As Livestock prices rise, producers increase herd
  size which increases supply which lowers prices
• This cycle repeats (9-16 years) (12 yr. Avg.)

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Livestock Fundamentals

• Seasonal Pattern
• cattle supply for slaughter is lower in spring,
  raises in late summer and fall
• Hog prices follow a 4 yr cycle (p. 19)
• Hog demand related to price of beef
• high beef prices increased pork consumption

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