Characteristics of ag products u Raw material u Bulky, perishable products u Quality variation u Examples: Fresh produce Fresh produce Cattle Cattle Grains Grains

Implications for markets u Location relative to consumers weight reducing processes weight reducing processes perishable perishable u Degree of handling assembly, sorting, grading assembly, sorting, grading u Price elasticity substitutes substitutes perishable perishable

Characteristics of production u Upward trend in output Increasing productivity Increasing productivity u Annual variation in production Supply and demand implications Supply and demand implications Capacity utilization problem Capacity utilization problem Weather risk Weather risk Market risk Market risk

Variability in Yield and Price Corn Soybeans YieldPriceYieldPrice Average Std Dev Stdev/Avg24%36%17%36%

Characteristics of production u Cyclical variation in production Psychological lag in production Psychological lag in production Biological lag in production Biological lag in production u Seasonal variation in production Grain crops Grain crops Livestock marketings Livestock marketings

Time from decision to market u Beef cattle 3.5 yrs Retain heifer to slaughter steer 3.5 yrs Retain heifer to slaughter steer u Hogs 1 yr Retain gilt to slaughter hog 1 yr Retain gilt to slaughter hog u Grains Annual crops Annual crops u Tree crops

Annual variation in production S D Cobweb Model P Q

Characteristics of production u Geographic concentration Regional advantages Regional advantages u Varying cost of production One selling price One selling price

US Top 10 Beef Cow States Million Beef Cows States 58% of Total

US Top 10 Cattle Feeding States Million head on Feed, States 85% of Total

US Top 10 Corn States, Million Bushels, States 84% of Total

US Top 10 Soybean States, Million Bushels, States 83% of Total

US Top 10 Hog States, Million Head, States 84% of Total

US Top 10 Egg States, Million eggs, States 64% of Total

US Top 10 Milk States, Million pounds, States 82% of Total

Iowa u #1 producer of Corn, Soybeans, Hogs, Eggs Corn, Soybeans, Hogs, Eggs u Significant producer of Feedlot cattle #5 Feedlot cattle #5 Beef Cows #11 Beef Cows #11 Milk #12 Milk #12

Characteristics of production u Scale of production Economies of scale Economies of scale Narrow margins Narrow margins Market assembly problems Market assembly problems Differing quality Differing quality

Input sector u Farmers are buyers and sellers u Increasing reliance on purchased inputs u Cost-price squeeze u Move to direct purchases of large volume

Farmer marketing problems u Disaggregate decision making u Weather and disease risk u Inability to adjust supplies u Price takers/hard to organize u Free rider problem

Farmer marketing problems u Cost-price squeeze Implications for scale Implications for scale Self induced as output prices increase Self induced as output prices increase u Buyer market power u Changing food market efficiency u Price differentials for quality Livestock grid marketing Livestock grid marketing Wheat protein Wheat protein Component pricing of milk Component pricing of milk

So what? u Increasing economies of scale u Production and cost risk u Competition for inputs u Single selling price

Consumer Trends  Consumer is king/queen  Increasingly affluent  Time starved  Product differentiation Away from commodities Away from commodities Toward specific products Toward specific products

Changing Demographics Households M people % Female head M Both work % Pop. <18 years Pop >64 years101113

Food Sales, 2001 $BillionChg ’00 At Home % Away from home %

So what??? u Increasing Consumer income Consumer income 2 income homes 2 income homes 1-2 person households 1-2 person households Age of consumers Age of consumers u What does it imply for The food marketing bill? The food marketing bill? Farmers? Farmers?