Characteristics of ag Characteristics of ag products products Raw material Raw material Bulky, perishable products Bulky, perishable products Quality variation Quality variation Examples: Examples: Fresh produce Fresh produce Cattle Cattle Grains Grains
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Characteristics of ag products u Raw material u Bulky, perishable products u Quality variation u Examples: Fresh produce Fresh produce Cattle Cattle Grains.
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Characteristics of ag productsCharacteristics of ag products
Raw materialRaw material Bulky, perishable productsBulky, perishable products Quality variationQuality variation Examples:Examples:
Std DevStd Dev 23.0423.04 0.700.70 5.005.00 1.791.79
Stdev/AvgStdev/Avg 24%24% 36%36% 17%17% 36%36%
Weekly Average Steer Carcass Weights
690
710
730
750
770
790
810
830
850Ja
n-9
2
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Average 782Std Dev 26CV 3%
Texas-OK Live Steer Prices
$55
$65
$75
$85
$95
$105
$115Ja
n-9
2
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Average 70.01Std Dev 7.31CV 10%
Characteristics of productionCharacteristics of production
Cyclical variation in productionCyclical variation in productionPsychological lag in productionPsychological lag in productionBiological lag in productionBiological lag in production
Seasonal variation in productionSeasonal variation in productionGrain cropsGrain cropsLivestock marketingsLivestock marketings
Time from decision to marketTime from decision to market
Beef cattleBeef cattle3.5 yrs Retain heifer to slaughter steer3.5 yrs Retain heifer to slaughter steer
HogsHogs1 yr Retain gilt to slaughter hog1 yr Retain gilt to slaughter hog
GrainsGrainsAnnual cropsAnnual crops
Tree crops Tree crops
Annual variation in productionAnnual variation in production
S
D
Cobweb
Model
P
Q
U.S. Cattle Inventory
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1,00
0 H
ead
ISU Estimated Farrow-Finish Returns & Change in 10 State Breeding Herd Lagged One Year
-60
-40
-20
0
20
40
60
80
Dec
-73
Dec
-75
Dec
-77
Dec
-79
Dec
-81
Dec
-83
Dec
-85
Dec
-87
Dec
-89
Dec
-91
Dec
-93
Dec
-95
Dec
-97
Dec
-99
$/H
ead
-25-20
-15-10-5
051015
2025
Per
cen
t C
han
ge
Returns Breeding Herd
Iowa S. Minnesota Barrow and Gilt Seasonal Price Index
0.94
0.97
1.08
0.98
0.97
0.98
0.93
0.90
1.01
1.101.091.06
0.85
0.90
0.95
1.00
1.05
1.10
1.15
Monthly Average Iowa Corn Prices, 1979-
80 Through 1999-00 Marketing Years
1.50
1.70
1.90
2.10
2.30
2.50
2.70
SEPOCTNOVDECJANFEBMARAPRMAYJUNJULAUG
Monthly Iowa Corn Price Declines, 1979-80 Through 1999-00 Marketing years
0%
10%
20%
30%
40%
50%
60%
70%
80%
Sep.-O
ct.
Oct.-N
ov.
Nov.-D
ec.
Dec.-J
an.
Jan.-F
eb.
Feb.-M
ar.
Mar
.-Apr.
Apr.-M
ay
May
-Jun
Jun-J
ul
Jul.-
Aug.
Aug.-Sep
.
Percent of time Prices Declined
Characteristics of productionCharacteristics of production
Characteristics of productionCharacteristics of production
Scale of productionScale of productionEconomies of scaleEconomies of scaleNarrow marginsNarrow marginsMarket assembly problemsMarket assembly problemsDiffering qualityDiffering quality
Input sectorInput sector
Farmers are buyers and sellersFarmers are buyers and sellers Increasing reliance on purchased Increasing reliance on purchased
inputsinputs Cost-price squeezeCost-price squeeze Move to direct purchases of Move to direct purchases of
Disaggregate decision makingDisaggregate decision making Weather and disease riskWeather and disease risk Inability to adjust suppliesInability to adjust supplies Price takers/hard to organizePrice takers/hard to organize Free rider problemFree rider problem
Implications for scaleImplications for scaleSelf induced as output prices increaseSelf induced as output prices increase
Buyer market powerBuyer market power Changing food market efficiencyChanging food market efficiency Price differentials for qualityPrice differentials for quality
Livestock grid marketingLivestock grid marketingWheat proteinWheat proteinComponent pricing of milkComponent pricing of milk
So what?So what?
Increasing economies of scaleIncreasing economies of scale Production and cost riskProduction and cost risk Competition for inputsCompetition for inputs Single selling priceSingle selling price
Consumer TrendsConsumer Trends
Consumer is king/queenConsumer is king/queen Increasingly affluentIncreasingly affluent Time starvedTime starved Product differentiationProduct differentiation
Away from commoditiesAway from commoditiesToward specific productsToward specific products
Changing DemographicsChanging Demographics
19701970 1990199019971997
Households MHouseholds M 63 63 93 93101101
1-2 people %1-2 people % 46 46 57 576060
Female head MFemale head M 5.6 5.6 10.9 10.912.812.8
Both work %Both work % 41 41 58 586262
Pop. <18 yearsPop. <18 years 3434 28282626
Pop >64 yearsPop >64 years 1010 11111313
Food Expenditures and Share of Disposable Income on Food
$-
$100
$200
$300
$400
$500
$600
$700
$800
1960 1965 1970 1975 1980 1985 1990 1995 2000
$B
illio
n
0
2
4
6
8
10
12
14
16
18
20
Pe
rce
nt
Expenditures Disposal Income on Food
Food Expenditures, Home and Away
0
200
400
600
800
1000
1200
1400
1960 1965 1970 1975 1980 1985 1990 1995 2000
$B
illio
n
At Home Away from Home
Food Sales, 2001Food Sales, 2001
$Billion$Billion Chg Chg ’00’00
At HomeAt Home 437.0437.0+3.0%+3.0%
Away from homeAway from home 366.0366.0+4.9%+4.9%
So what???So what???
Increasing Increasing Consumer incomeConsumer income2 income homes2 income homes1-2 person households1-2 person householdsAge of consumersAge of consumers
What does it imply forWhat does it imply forThe food marketing bill?The food marketing bill?Farmers?Farmers?