Transcript Quiz March 26

Market Situation & Outlook

Interpret market factors that impact
prices and resulting marketing and
management decisions
» Supply
» Demand
Motivations
Estimate elasticities for policy analysis
 Evaluate marketing decisions
 Efficient market hypothesis
 Enhance competition by providing timely
and relevant information
 Interpret information

Market Situation
Define current and recent past
 Typically measuring change in key variables to
estimate change in price

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
Intermediate term outlook
Supply and demand become more elastic
 Buyers and sellers better able to react to
prices

Long term outlook
Buyers and sellers fully adjust to prices
 Rely on elasticities and cost curves to
estimate quantity changes

Short run forecast

Price
» = f (own supply, supply of substitutes,
supply of complements, income, population,
exports, imports, marketing margins)
Short term outlook

Use price flexibilities
» The percentage change in price for a 1%
change in the quantity supplied
» Fpi = % Pi / % Q i
» Approximately 1/elasticity
Own price flexibilities
Assumes all else equal
 Always negative
 Typically about -2.0 for most ag
commodities

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
Compare to another period
Typically compare to same time period
one year earlier
 Captures seasonal demand and marketing
margin factors

Using Flexibilities
Change in price of beef=
% beef supply
+ % pork supply
+ % poultry supply
+ % income
+ % population
____x
____x
____x
____x
____x
-2.0 = ___
-0.3 = ___
-0.3 = ___
+0.2 = ___
+1.0 =___
Now forecast supplies

Inventory reports
» Cattle on feed
» Hogs and Pigs
» Hatchery numbers

Demand relatively stable
Other impacts

Imports & exports
» Put in perspective
Marketing margins
 Seasonal patterns
 Cyclical patterns

Seasonal patterns

A price pattern that repeats itself with
some degree of accuracy year after year.
» Supplies and demand
» Often sound reasons
» Widely known
Io w a S. Min n eso ta B arro w an d G ilt Seaso n al
Price In d ex
1.15
1.10
1.05
1.01
1.00
0.95
1.08
1.09 1.10
1.06
0.98
0.97
0.94
0.98
0.97
0.93
0.90
0.90
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0.85
Cyclical Pattern
A production and price pattern that
repeats itself over longer than a year.
 Production tied to profits
 Biological lag
 Hogs and Cattle

Grain Balance Sheet
Incorporate supply and demand into one
number
 Relate S/U to price levels

» Supply to Use ratio
» “Carryover”
Grain Supply and Use

Total supply
» Beginning stocks + production + imports

Total utilization
» Exports + processing + seed + food + feed
and residual + carry over
Supply / Use

“Supply” =
» Ending stocks or carryover

“Use” =
» All but carryover
» Demand during the year
Supply / Use

Ratio S/U
» Measure marginal supply relative to demand
» The smaller the ratio the tighter the supply
and the higher the price
» Non-linear relationship
Grain Forecast

Forecast
» Production = f(acres, yield, imports)
» Use = f(feed demand, exports, processing)
»S/U
Government reports
Planting intentions
 Crop progress and estimates
 Stocks
 Exports

Trends and Patterns
Trend line yields
 Seasonal price patterns

» Typically linked to storage cost
» Basis relationships