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Econ 338C, Spring 2009 ECON 338C: Topics in Grain Marketing Chad Hart Assistant Professor/Grain Markets Specialist 515-294-9911.

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Presentation on theme: "Econ 338C, Spring 2009 ECON 338C: Topics in Grain Marketing Chad Hart Assistant Professor/Grain Markets Specialist 515-294-9911."— Presentation transcript:

1 Econ 338C, Spring 2009 ECON 338C: Topics in Grain Marketing Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2 Econ 338C, Spring 2009 Marketing A series of events and services to create, modify, and transport a product from initial creation to consumption Possible steps:  Planning  Production  Inspection  Transport  Storage  Processing  Sale Market players:  Producers  Elevators  Processors  Transport companies  Banks/Insurance companies  Traders  Feeders

3 Econ 338C, Spring 2009 Market Functions  Location  Time  Form  Price discovery Where do you want it? When do you want it? How do you want it? What will you pay for it?

4 Econ 338C, Spring 2009 Price Determination and Discovery Price Determination –is the broad forces of supply and demand establishing a market clearing price for a commodity. Price Discovery –is the process by which buyers and sellers arrive at a specific price for a given lot of produce at a given location for a specific time period.

5 Econ 338C, Spring 2009 Price Determination and Price Discovery S D P Q PePe QeQe

6 Econ 338C, Spring 2009 Price Discovery A human process, subject to relative bargaining power of the buyer and seller. Two stage process –Evaluate supply & demand –Estimate the price for the specific trade

7 Econ 338C, Spring 2009 Cash Markets  Local elevators  Ethanol plants & soybean crushers  River terminals  Feeders/feed mills A market where physical commodities are traded

8 Econ 338C, Spring 2009 Futures Markets  Chicago: Corn, soybeans, wheat (soft red), oats, rice  Along with the livestock complex  Kansas City: Wheat (hard red winter)  Minneapolis: Wheat (hard red spring)  Tokyo: Corn, soybeans, coffee, sugar  Has a market for Non-GMO soybeans  Other markets in Argentina, Brazil, China, and Europe A market where contracts for physical commodities are traded, the contracts set the terms of quantity, quality, and delivery

9 Econ 338C, Spring 2009 Market Activities  Pricing the commodity  Establishing contracts  Merchandising the commodity among uses  Transporting the products  Storing the products  Managing and controlling the products  Managing production and price risks

10 Econ 338C, Spring 2009 Soybean Crush Prices based on July futures, 3/11/09

11 Econ 338C, Spring 2009 U.S. Corn Supply and Use Source: USDA 200720082009 Area Planted(mil. acres)93.586.0 Yield(bu./acre)150.7153.9156.9 Production(mil. bu.)13,03812,10112,365 Beg. Stocks(mil. bu.)1,3041,6241,790 Imports(mil. bu.)2015 Total Supply(mil. bu.)14,36213,74014,170 Feed & Residual(mil. bu.)5,9385,3005,200 Ethanol(mil. bu.)3,0263,7004,100 Food, Seed, & Other(mil. bu.)1,3371,300 Exports(mil. bu.)2,4361,7001,850 Total Use(mil. bu.)12,73712,00012,450 Ending Stocks(mil. bu.)1,6241,7401,720 Season-Average Price($/bu.)4.204.103.60

12 Econ 338C, Spring 2009 U.S. Soybean Supply and Use Source: USDA 200720082009 Area Planted(mil. acres)64.775.777.0 Yield(bu./acre)41.739.642.6 Production(mil. bu.)2,6772,9593,240 Beg. Stocks(mil. bu.)574205210 Imports(mil. bu.)1093 Total Supply(mil. bu.)3,2613,1733,453 Crush(mil. bu.)1,8011,6401,675 Seed & Residual(mil. bu.)93163172 Exports(mil. bu.)1,1611,1851,225 Total Use(mil. bu.)3,0562,9883,073 Ending Stocks(mil. bu.)205185380 Season-Average Price($/bu.)10.109.358.00

13 Econ 338C, Spring 2009 Outside Influences (Jan. 2007 = 1)

14 Econ 338C, Spring 2009 Outside Influences (Sept. 2008 = 1)

15 Econ 338C, Spring 2009 Ethanol Margins Source: ISU, CARD

16 Econ 338C, Spring 2009 Renewable Fuels Standard (RFS)

17 Econ 338C, Spring 2009 Harvest Futures Source: CBOT

18 Econ 338C, Spring 2009 Input Costs Source: USDA, Agricultural Prices, Feb. 2009

19 Econ 338C, Spring 2009 Iowa Corn Prices vs. Costs Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

20 Econ 338C, Spring 2009 Estimates for 2009 Iowa Costs Non-land Cost Land Cost Total Cost Expected Yield Cost per Bushel ($/acre)(bu/acre)($/bu) Corn 486.61205.00691.611604.32 Soybean 285.60205.00490.60509.81 December 2009 Corn Futures = $3.96 (3/11/09) November 2009 Soy Futures = $8.17 (3/11/09) Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf

21 Econ 338C, Spring 2009 Estimated 2009 Iowa Corn Costs Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf

22 Econ 338C, Spring 2009 Estimated 2009 Iowa Corn Costs Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf

23 Econ 338C, Spring 2009 Estimated 2009 Iowa Corn Costs Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf Short run, need to cover cash flow costs Seed, fertilizer, chemicals, rent, insurance, etc. Cash flow costs vary by structure Cash renter, Share renter, Owner Farmer choices: Fertilizer, crop insurance

24 Econ 338C, Spring 2009 Seasonal Pricing Patterns Source: USDA, NASS, Monthly Price Data 1980-2008

25 Econ 338C, Spring 2009 A Few Definitions and Relationships Spread is the difference between futures prices Basis = Cash price – Futures price Rearranging terms: Cash price = Futures price + Basis

26 Econ 338C, Spring 2009 Corn Futures Source: CBOT, 3/10/09 Spread = 18.75 cents Spread indicates the market’s willingness to pay for storage

27 Econ 338C, Spring 2009 Soybean Futures Source: CBOT, 3/10/09 Spread = -23.5 cents What is the signal the market is sending? This is called an inverted market.

28 Econ 338C, Spring 2009 Historical Basis for Iowa Factors that affect basis: Transportation costs Storage and interest costs Local supply and demand

29 Econ 338C, Spring 2009 Basis

30 Econ 338C, Spring 2009

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33 Class web site: http://www.econ.iastate.edu/classes/econ338C/Hart/ Have a great Spring Break! http://www.econ.iastate.edu/classes/econ338C/Hart/


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