1. Commodity Marketing Activity
Chapter #2

2. Supply and Demand
Supply: quantity of a commodity the producers are willing to provide at a given price
If prices are low, producer can keep their product
Law of Supply: relationship between supply and price

3. Law of Supply

4. Supply
Grain Supply: carryover stocks, current production, expected production
weather
yields
amount in storage
government programs
exports & imports
Livestock Supply: current production only
feed and feeder costs

5. Changes in Supply

6. Demand
Quantity of a commodity that the buyers are willing to purchase at a given price
Law of Demand: relationship between demand and price
Prices are high, buyers buy less

7. Law of Demand

8. Change in Demand

9. Factors Affecting Demand
Consumer Tastes
Income
Population Size
Price of Substitution Goods
Consumers will substitute other meats if beef is too high

10. Market Price
When quantity supplied equals quantity demanded = market price (equilibrium price)
When Supply line crosses Demand line

11. Market Price

12. Shift in Supply Affects Market Price

13. Factors Affecting Market Price
Supply factors
production costs
government programs
exports & imports
price
Demand factors
consumer tastes
income
population
price of substitution goods
market price influences consumption

14. Factors Affecting Market Price
How will the market price be affected if:
Supply increases, Demand is the same?
Supply decreases, Demand is the same?
Supply stays the same, Demand increases?
Supply stays the same, Demand decreases?

15. Carryover Projected corn usage = 7 billion bu
Carryover stocks = 7 billion bu.
All production would be carryover
Prices will fall
Projected corn usage = 7 billion bu.
Carryover stocks = 2 billion bu.
Projected useage = 9 billion bu.
No corn left, prices rise drastically

16. Carryover Compare carryover to prices of previous years
Carryover = 2 bill. Bu. & Production = 8 bill. Bu., then carryover = 25%
Look at years where carryover was 20-30%, this will give you a good idea what to expect prices to be
These numbers released regularly from the U.S. Dept. of Agriculture
Table Page 16

17. Important Fundamentals for Corn
Acreage and yields
Moisture & temp in July & Aug
Livestock on Feed
Exports
U.S. dollar exchange rate
weak U.S. dollar = foreigners can buy more

18. Important Fundamentals for Wheat
Growing conditions
Winter
Snow cover in winter
Spring wheat
Exports

19. Important Fundamentals for Soybeans
Soybean Meal (animal & people food)
Oil (edible oil products & industry)
Crush Margin = cost of soybeans to value of resulting oil and meal

20. World Crop Supply World Crop Supply Produced by the U.S. in 1989
Corn 41%
Wheat 10%
Soybeans 49%
U.S. Crop Production Exported to Foreign Countries in 1989
Corn 28%
Wheat 62%
Soybeans 30%

21. Livestock Fundamentals
No carryover stocks
Cattle on Feed Report (p. 18)
Consumption patterns
High Feed Prices = Producers lower herd size (slaughter females) = Increases supply
long run will decrease supply
As Livestock prices rise, producers increase herd size which increases supply which lowers prices
This cycle repeats (9-16 years) (12 yr. Avg.)

22. Livestock Fundamentals
Seasonal Pattern
cattle supply for slaughter is lower in spring, raises in late summer and fall
Hog prices follow a 4 yr cycle (p. 19)
Hog demand related to price of beef
high beef prices = increased pork consumption