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 Supply is relatively inelastic Price is a function of: own supply supply of substitutes supply of complements income population exports and 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

Own price flexibilities Assumes all else equal Always negative Typically in average -2.0 to -3.0 for most ag commodities Can differ widely when everything else is not equal

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 Much smaller than own price flexibilities

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 hogs from year before = % pork supply ____x -3.0 = ___ + % beef supply ____x -0.3 = ___ + % poultry supply ____x -0.3 = ___ + % income ____x +0.2 = ___ + % population ____x +1.0 = ___ Total % Change ___ Price a year ago x (1-% chg) = forecast price

Now forecast supplies Change in supplies Demand relatively stable Inventory reports Biological factors Demand relatively stable

Government reports Hogs and Pigs report Quarterly Cattle on Feed Monthly Cattle Inventory Semi-annual Slaughter information Daily and weekly Numbers, weights, class Market prices Daily

Other impacts Imports & exports Marketing margins Seasonal patterns Put in perspective Marketing margins Seasonal patterns Cyclical patterns Carcass weights Productivity changes Demand may not be stable

Seasonal patterns A price pattern that repeats itself with some degree of accuracy year after year. Supplies and demand Often sound reasons Widely known

Iowa S. Minnesota Barrow and Gilt Seasonal Price Index 0.94 0.97 1.08 0.98 0.93 0.90 1.01 1.10 1.09 1.06 0.85 0.95 1.00 1.05 1.15 Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.

Cyclical Pattern A production and price pattern that repeats itself over longer than a year. Production tied to profits Biological lag Hogs and Cattle

Market Outlook – 2000 - 01 John Lawrence and Alan Vontalge Economics Department Iowa State University

USDA Sept 2000 Hogs & Pigs Category Mil. Hd %Chg 99 All Hogs&Pigs 60.2 -1.0 Breeding Herd 6.3 -0.6 Market Hogs 53.9 Under 60# 20.0 60-119# 13.3 120-179# 11.0 -0.7 180# & Up 9.6 -1.4

Sept 2000 Hogs & Pigs Pig Crop Mil. Hd. %Chg 99 Jun-Aug 25.68 -0.7 Sows Farrowing 2.90 -0.6 Sept-Nov * 2.88 +1.4 Dec-Feb ‘01* * Intentions 2.89 +3.4

Increasing Productivity June 1st Breeding herd -4.3% Sows Farrowing Jun-Aug -0.6% Pigs per Litter Jun-Aug -0.1% Resulted in: Pigs Crop Jun-Aug -0.7% Additional weights could push pork production to above year earlier levels.

2000 US Pork Trade Jan-July Exports +27.3%; Imports +21.9% Net exports up 39.7% Japan +13.1% Canada +4.0% Mexico +81.6% Russia +3598.9% Without Russia, exports are +9.8%

Hog Price Forecast, Sept. 26, 2000 Quarter Year Ago % Chg Forecast Price Oct-Dec 34.40 -0 34-37 Jan-Mar 39.20 +0 37-40 Apr-Jun 48.20 +2 41-44 Jul-Sep 43.80 +4 36-39