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

2. 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

3. 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

5. Variability in Yield and Price Corn Soybeans YieldPriceYieldPrice Average97.351.9429.984.94 Std Dev23.040.705.001.79 Stdev/Avg24%36%17%36%

8. 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

9. 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

10. Annual variation in production S D Cobweb Model P Q

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

17. US Top 10 Beef Cow States Million Beef Cows 5.47 2.07 1.91 1.52 1.95 1.81 1.53 1.06 1.04 1.00 10 States 58% of Total

18. US Top 10 Cattle Feeding States Million head on Feed, 2002.955 2.37 2.53 2.89 1.21.365.335.305.480.355 10 States 85% of Total

19. US Top 10 Corn States, Million Bushels, 2002 1904 927 286 1559 270 617 277 333 364 1061 10 States 84% of Total

20. US Top 10 Soybean States, Million Bushels, 2002 490 179 82 424 153 233 148 125 102 311 10 States 83% of Total

21. US Top 10 Hog States, Million Head, 2002 15.30 2.90 1.53 4.05 2.95 3.15 9.60 1.44 2.49 5.90 10 States 84% of Total

22. US Top 10 Egg States, Million eggs, 2001 797 282 444 682 246 503 552 529 424 263 10 States 64% of Total

23. US Top 10 Milk States, Million pounds, 2001 1837 490 456 483656 972 912 2794 429 738 10 States 82% of Total

24. 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

25. 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

26. 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

28. 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

29. 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

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

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

32. Changing Demographics 197019901997 Households M 63 93101 1-2 people % 46 5760 Female head M 5.6 10.912.8 Both work % 41 5862 Pop. <18 years342826 Pop >64 years101113

35. Food Sales, 2001 $BillionChg ’00 At Home437.0+3.0% Away from home366.0+4.9%

36. 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?