Commodity Marketing Activity Chapter #2. Supply and Demand n Supply: quantity of a commodity the...
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Transcript of Commodity Marketing Activity Chapter #2. Supply and Demand n Supply: quantity of a commodity the...
Commodity Marketing ActivityCommodity Marketing Activity
Chapter #2Chapter #2
Supply and DemandSupply and Demand
Supply: quantity of a commodity the Supply: quantity of a commodity the producers are willing to provide at a given producers are willing to provide at a given priceprice
If prices are low, producer can keep their If prices are low, producer can keep their productproduct
Law of Supply: relationship between supply Law of Supply: relationship between supply and priceand price
Law of SupplyLaw of Supply
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Quantity
Supply
SupplySupply Grain Supply: carryover stocks, current production, Grain Supply: carryover stocks, current production,
expected productionexpected production– weatherweather– yieldsyields– amount in storageamount in storage– government programsgovernment programs– exports & importsexports & imports
Livestock Supply: current production onlyLivestock Supply: current production only– weatherweather– feed and feeder costsfeed and feeder costs– exports & importsexports & imports
Changes in SupplyChanges in Supply
Quantity
Price
DemandDemand
Quantity of a commodity that the buyers are Quantity of a commodity that the buyers are willing to purchase at a given pricewilling to purchase at a given price
Law of Demand: relationship between Law of Demand: relationship between demand and pricedemand and price
Prices are high, buyers buy lessPrices are high, buyers buy less
Law of DemandLaw of Demand
Quantity
Price
Change in DemandChange in Demand
Quantity
Price
Factors Affecting DemandFactors Affecting Demand
Consumer TastesConsumer Tastes IncomeIncome Population SizePopulation Size Price of Substitution GoodsPrice of Substitution Goods Consumers will substitute other meats if Consumers will substitute other meats if
beef is too highbeef is too high
Market PriceMarket Price
When quantity supplied equals quantity When quantity supplied equals quantity demanded = market price (equilibrium demanded = market price (equilibrium price)price)
When Supply line crosses Demand lineWhen Supply line crosses Demand line
Market PriceMarket Price
Quantity
Price
SupplyDemand
Equilibrium Price
Shift in Supply Affects Market PriceShift in Supply Affects Market Price
Quantity
Price
SupplyDemand
Equilibrium Price
Factors Affecting Market PriceFactors Affecting Market Price
Supply factorsSupply factors– production costsproduction costs
– government programsgovernment programs
– exports & importsexports & imports
– priceprice
Demand factorsDemand factors– consumer tastesconsumer tastes
– incomeincome
– populationpopulation
– price of substitution price of substitution goodsgoods
– market price influences market price influences consumptionconsumption
Factors Affecting Market PriceFactors Affecting Market Price
How will the market price How will the market price be affected if:be affected if:
Supply increases, Demand Supply increases, Demand is the same?is the same?
Supply decreases, Demand Supply decreases, Demand is the same?is the same?
Supply stays the same, Supply stays the same, Demand increases?Demand increases?
Supply stays the same, Supply stays the same, Demand decreases?Demand decreases?
Quantity
Price
SupplyDemand
Equilibrium Price
CarryoverCarryover
Projected corn usage = 7 billion buProjected corn usage = 7 billion bu Carryover stocks = 7 billion bu.Carryover stocks = 7 billion bu. All production would be carryoverAll production would be carryover Prices will fallPrices will fall Projected corn usage = 7 billion bu.Projected corn usage = 7 billion bu. Carryover stocks = 2 billion bu.Carryover stocks = 2 billion bu. Projected useage = 9 billion bu.Projected useage = 9 billion bu. No corn left, prices rise drasticallyNo corn left, prices rise drastically
Carryover Carryover
Compare carryover to prices of previous yearsCompare carryover to prices of previous years Carryover = 2 bill. Bu. & Production = 8 bill. Carryover = 2 bill. Bu. & Production = 8 bill.
Bu., then carryover = 25%Bu., then carryover = 25% Look at years where carryover was 20-30%, Look at years where carryover was 20-30%,
this will give you a good idea what to expect this will give you a good idea what to expect prices to beprices to be
These numbers released regularly from the U.S. These numbers released regularly from the U.S. Dept. of AgricultureDept. of Agriculture
Table Page 16Table Page 16
Important Fundamentals for CornImportant Fundamentals for Corn
Acreage and yieldsAcreage and yields Moisture & temp in July & AugMoisture & temp in July & Aug Livestock on FeedLivestock on Feed ExportsExports U.S. dollar exchange rateU.S. dollar exchange rate
– weak U.S. dollar = foreigners can buy moreweak U.S. dollar = foreigners can buy more
Important Fundamentals for WheatImportant Fundamentals for Wheat
Growing conditionsGrowing conditions Winter Winter
– Snow cover in winterSnow cover in winter Spring wheatSpring wheat ExportsExports
Important Fundamentals for SoybeansImportant Fundamentals for Soybeans
Soybean Meal (animal & people food)Soybean Meal (animal & people food) Oil (edible oil products & industry)Oil (edible oil products & industry) Crush Margin = cost of soybeans to value Crush Margin = cost of soybeans to value
of resulting oil and mealof resulting oil and meal
World Crop SupplyWorld Crop Supply
World Crop Supply World Crop Supply Produced by the U.S. Produced by the U.S. in 1989in 1989
CornCorn 41%41%
WheatWheat 10%10%
SoybeansSoybeans 49%49%
U.S. Crop Production U.S. Crop Production Exported to Foreign Exported to Foreign Countries in 1989Countries in 1989
CornCorn 28%28%
WheatWheat 62%62%
SoybeansSoybeans 30%30%
Livestock FundamentalsLivestock Fundamentals
No carryover stocksNo carryover stocks Cattle on Feed Report (p. 18)Cattle on Feed Report (p. 18) Consumption patternsConsumption patterns High Feed Prices = Producers lower herd size High Feed Prices = Producers lower herd size
(slaughter females) = Increases supply(slaughter females) = Increases supply– long run will decrease supplylong run will decrease supply
As Livestock prices rise, producers increase herd As Livestock prices rise, producers increase herd size which increases supply which lowers pricessize which increases supply which lowers prices
This cycle repeats (9-16 years) (12 yr. Avg.)This cycle repeats (9-16 years) (12 yr. Avg.)
Livestock FundamentalsLivestock Fundamentals
Seasonal PatternSeasonal Pattern– cattle supply for slaughter is lower in spring, cattle supply for slaughter is lower in spring,
raises in late summer and fallraises in late summer and fall Hog prices follow a 4 yr cycle (p. 19)Hog prices follow a 4 yr cycle (p. 19) Hog demand related to price of beefHog demand related to price of beef
– high beef prices = increased pork consumptionhigh beef prices = increased pork consumption