1. Agricultural production & farm supply
AG BM 102

2. General Characteristics of U.S. Agriculture
U.S. has about 5% of world’s people
17% of cotton
43% of corn
60% soybeans
6% of land
22% of apples

3. Economies of Size in Farming
Larger farms can specialize more
Use equipment better
Spread management over more units
Get better rates on shipping and purchasing
For crops maximum size hit limits because of distance

5. Costs of producing milk by herd size

6. Family Farms Most farms are still family farms 48,000 PA Farms
7 have more than 10 stockholders
117 are not family corporations
Corporate Farming doesn’t work very well
Returns low
Hired workers don’t work as hard
Hours an issue

7. Fixed Asset Theory – Once assets are owned they are hard to resell, so farmers will operate at a loss for many years

9. Biological Time Lags
Volunteer
Affect elasticities

10. Seasonality One crop per year
Must ration output using storage & processing
Ties prices at different times together

11. Unique characteristics of farm supply.
Commodity products - low barriers to entry, no product differentiation
Often one crop per year
Perishability- strawberries, cattle - can't sit on product waiting for better price -sell it or smell it.
Producers small compared to market - price takers

12. More unique characteristics
Time lags introduce expectations- don't know price when decision is made
Short-run versus long-run elasticity
One crop versus all food - limited amount of land
Price variability - inelastic supply and demand makes prices variable

13. Concluding Comments
Today’s class tells why agricultural business is a separate discipline
Biology & structure of ag affects markets
Limits choices & behavior
When people from general business get involved they often miss these issues & lose a lot of money