Transcript Chpt 2 - Glen Rose FFA

Commodity Marketing Activity
Chapter #2
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

Law of Supply
140
120
100
80
Supply
60
40
20
0
Quantity

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
Changes in Supply
Price
Quantity
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

Law of Demand
Price
Quantity
Change in Demand
Price
Quantity
Factors Affecting Demand
Consumer Tastes
 Income
 Population Size
 Price of Substitution Goods
 Consumers will substitute other meats if
beef is too high

Market Price
When quantity supplied equals quantity
demanded = market price (equilibrium
price)
 When Supply line crosses Demand line

Market Price
Demand
Supply
Price
Equilibrium Price
Quantity
Shift in Supply Affects Market Price
Demand
Supply
Price
Equilibrium Price
Quantity
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
Factors Affecting Market Price


Demand
Supply
Price
Equilibrium Price


Quantity

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?
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

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

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
Important Fundamentals for Wheat
Growing conditions
 Winter

– Snow cover in winter
Spring wheat
 Exports

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

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%

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