Transcript Marketing - Glen Rose FFA

Marketing
Chapter #7
What is Marketing?
 All
the economic activities involved in preparing
and positioning the product for the final consumer
What is Utility?
 Customer
satisfaction
 consumer needs
Form Utility
 In
what form is a product available
 Whole
chicken
 Chicken parts
 Cooked chicken
 Each
step adds value
Place Utility
 Where
is a product available
 Convenience
Time Utility
 When
is a product available
What percentage of the final product
does the producer receive?
 Dairy
farmer = 34% for milk
 Grain products = 9%
What is the Law of Demand?
 At
any point in time, the rational consumer will
take more only at a lower price.
 Ex: How many hamburgers would you buy at $2?
 How many hamburgers would you buy at $1?
 How many hamburgers would you buy at 50
cents?
 How many hamburgers would you buy at 25
cents?
Law of Demand
Price
Demand
Quantity
What is the Law of Supply?
 Producers
are willing to offer more only at a
higher price
 Ex: How many acres of wheat will you plant if
wheat is worth $2 / bu.?
 How many acres of wheat will you plant if wheat
is worth $4 / bu.?
 How many acres of wheat will you plant if wheat
is worth $8 / bu.?
Law of Supply
Supply
Price
Quantity
Law of Supply & Demand
Supply
Price
Demand
Quantity
What is Equilibrium Price?
 Price
is determined where supply and demand
curves intersect
Law of Supply & Demand
Supply
Price
Demand
Quantity
What is Price Discovery?
 The
process of searching for the Equilibrium Price
 Many things involved that can alter supply and
demand
 Government
 Weather
 World
Trade
 Surplus
incentives
How does change in supply affect
price, if demand stays the same?
Supply 1
Price
Supply 2
Demand
Quantity
Economies of Size
 Within
Limits, larger businesses (farms) can
produce at a cheaper cost per unit of production
 Eventually, as business becomes too large, costs
increase
Futures Market
Futures Contract
 Futures
Contract = a contract calling for delivery
of a carefully described commodity at some later
time
 Not intended for actual delivery of commodity, but
price discovery for later period
 Method of transferring risk of cash market of
producer to speculator in futures market
Basis
 The
difference between cash market and futures
market
 Cash - Futures = Basis
 usually
negative
Forward Pricing
 Forward
Contract = a contract which locks in a
price for later delivery
 Forward Price = Futures Price + Basis
 Ex:
Futures Contract = $3.10
 Basis = -20 cents
 Forward Price = $3.10-.20 = $2.90
What are Put Options?
 The
Right to sell futures contracts at specific
prices.
 Strike Prices offered in 10 cent intervals for corn
 Want to buy a Put Option for $3.10 corn
 Basis = -.20
Premium = .12
 Price Floor = Strike Price + Basis - Premium
 Price Floor = $3.10 - .20 - .12 = $2.78
What are Put Options?
 What
if price goes up?
 Futures = $3.50
Cash = $3.30
 Net Price = Cash Price + Option Value - Premium
 Net Price = $3.30 + 0 - .12 = $3.18
 What has the Put Option accomplished?
What are Put Options?
 What
if the price goes down?
 Futures = $2.50
Cash = $2.70
 Net Price = Cash Price + Option Value - Premium
 Net Price = $2.70 + .40 - .12 = $2.78
 What has the Put Option accomplished?