1. ECON 337: Agricultural Marketing Chad Hart Associate Professor chart@iastate.edu 515-294-9911 Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356

2. Chad Hart Associate Professor chart@iastate.edu 515-294-9911 Heady 468E Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356 Heady 478D

3. Class Time:TR 9:30-10:20am Carver 202 Lab Time:T 2:10-4:00pm Heady 68 Office Hours:By appointment Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2014/

4. Guidelines and rules:  No cell phone calls or texting in class or lab  Lab attendance is required, difficult to reschedule  Class attendance is recommended Course reading and resource materials will be available on-line Grading:  Two exams40%  Three quizzes15%  Homework assignments15%  Marketing plan project and report30%

5. Course objectives:  Understand the use of futures, options, and other tools in marketing and risk management decisions  Understand the use of cash sales and contracts and the role of basis, storage, and transportation in determining prices  Know the various sources of agricultural data information and the roles these data play within the commodity markets  Understand the forces that shape commodity markets and learn about market/price forecasting  Design an integrated production and marketing plan for farms and agribusiness

6. 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

7. 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?

8. Cash Markets  Local elevators  Ethanol plants & soybean crushers  River terminals  Feeders/feed mills A market where physical commodities are traded

9. Futures Markets  Chicago: Corn, soybeans, cattle, hogs  Along with wheat (soft red), oats, rice  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

10. The Cash and Futures Markets Are Related Basis = Cash price – Futures price Rearranging terms: Cash price = Futures price + Basis So national (and international) events can affect local prices

11. 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

12. 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.

13. Price Determination and Price Discovery S D P Q PePe QeQe

14. Futures Markets  Organized and centralized market  Today’s price for products to be delivered in the future  A mechanism of trading promises of future commodity deliveries among traders

15. Futures and Options  Market tools to help manage (share) price risks  Mechanisms to establish commodity trades among participants at a future time  Available from commodity exchanges / futures markets

16. Agricultural Futures Markets  Has some unique features due to the nature of agricultural businesses  Supply comes online a few times during the year  So at harvest, supply spikes, then diminishes until the next harvest  Production decisions are based price forecasts  Planting decisions can be made a full year (or more) before the crop price is realized  Users provide year-round demand  Livestock feeding, biofuel production, food demand

17. Futures Market Exchanges  Competitive markets  Open out-cry and electronic trading  Centralized pricing  Buyers and sellers are both in the market  Relevant information is conveyed through the bids and offers for the trades  Bid = the price at which a trader would buy the commodity  Offer = the price at which a trader would sell the commodity

18. Futures Market Exchanges  Modern futures market began long ago  1848 -- Chicago Board of Trade  1898 -- Chicago Mercantile Exchange  2007 -- CME Group merged CBOT and CME  Highly regulated markets  Commodity Futures Trading Commission (CFTC)

19. The View from the Corn Pit Source: M. Spencer Green, AP Photo