Three factor to consider Market, Market & Market. Some of our agricultural produce is actually utilized on the farm from where they were produced

Transcription

1 Marketing

2 Three factor to consider Market, Market & Market. Some of our agricultural produce is actually utilized on the farm from where they were produced (i.e. hay). However, over 90% of US wheat and 30% of corn is sold off market. Marketing is the system whereby a producer supplies satisfactory products to a consumer at a price that is acceptable to both.

3 Make a profit, and hence be long-term sustainable. Input (growing) costs: Land rental, crop share, mortgage payment. Seed, seed treatment. Fertilizer, pesticide, application. Storage, Fuel, Machinery replacement. Salary. Crop outputs: Market price x volume.

4 Farmland Value by Region 2010

5 CBOT Crude Oil March 2008 $ gallon

6 CBOT Crude Oil March 2009 $44.76 gallon

7 CBOT Crude Oil March 2010 $78.32 gallon

8 CBOT Crude Oil March 2011 $ gallon Anhydrous ammonia

9 US Gasoline Prices

10 $12.00 $10.00 $8.00 $6.00 $4.00 $7.19 $7.19 $6.33 $6.57 $6.73 $2.87 $3.06 $3.31 $3.40 $3.53 $7.83 $4.17 $9.81 $5.10 $9.45 $8.67 Soybean $4.50 $3.89 Corn $2.00 $

11 Breakeven price: The price a producer must receive for a commodity in order to recover all of the costs associated with producing and/or storing the commodity. Cash flow breakeven: The price needed to recover the cash expenditures associated with producing the commodity. Accounting cost breakeven: The price needed to recover all costs except the opportunity costs associated with producing the commodity. Economic cost breakeven: The price needed to recover all costs including the opportunity costs associated with producing the commodity.

12 Production for Seed

13 Pure line (inbred) cultivars. Wheat, soy bean, pea, barley, oat, canola, etc. Foundation, Registered, Certified Seed. Hybrid cultivars. Corn, tomato, cabbage, rice, canola. Most difficult and expensive seed. Synthetic cultivar. Alfalfa, corn. Multi-parent hybrid. Clonal cultivar. Potato, strawberry, many tree fruits. Slow increase, generation based schemes.

14 Quickly perishable crops. Lettuce, cabbage, spinach, etc. Farm gate, farmers market Local, regional and national retailer. Longer-term perishable crops. Potato, carrot, sugar beet, onion, many fruits, etc. On farm, or local storage, specialized storage, environmental control (temperature, CO 2 ) Local processing (freeze, dry) prior to sale. Non-perishable crops. Wheat, barley, corn, etc. Can be stored for long periods of time.

15 Storage

16 Packaging to reduce produce damage and ease transportation. Some product (i.e. grains) are bulked into trucks and semi s direct from harvesters. Storage and transportation are two critical components of marketing. Storage is expensive but stored produce can sell at a premium. Distribution. Marketing depends on the principals of supply and demand. Produce must be moved in a timely manner to customers. Financing is needed to provide a means to cover the costs of storage and transportation.

17 Cash crop. Produced solely for sale off the farm. Can usually command higher price cw food crops. Commodities any economic goods that may be marketed by almost anyone. Large volume crops: Wheat, corn, soybean. Specialty crops: tomato, potato, onions. Differentiated products are economic goods that have proprietary ownership. Frequently covered by patent, copyright, trademark. Owner can have more control of volume and price.

18 Branding. Produce identified by a brand name, trademark. These are usually identified by or (Roundup ) Agribusiness: Produces value-added. Many farm crops are processed prior to sale by agribusiness. Many final products (i.e. frozen dinners) combine many farm products. Often agribusiness controls product transportation, storage and processing. Some may be farm owned, cooperative owned or have no obvious link to farming.

19 Sell at harvest, or just after, for cash. No need for farm storage. Less common now due to seasonally low prices at harvest and world trade. On-farm storage and sell later. Has pricing flexibility, require producer price speculation. On-farm storage can be risky and crop damage can occur. Commercial elevators and sell later. Usually provides long-term quality storage. Price flexibility, but storage is expensive.

20 Forward or futures contracts. Agreements to deliver produce at a predetermined price and place. Prices are locked in but contracts are binding and growers often contract only a portion of their crop. Hedging in the futures market. Elevators sell grain is what is called back-to-back cash selling, or cover (hedge) the cash position in the futures market. The producer trades price risk for basis risk (difference between current price and near-futures price). Producer can sell futures contracts and buy them back if the market situation changes.

21 CBOT Corn Prices March 2008 $5.46 Bu

22 CBOT Corn Prices March 2009 $3.52 Bu

23 CBOT Corn Prices March 2010 $3.67 Bu

24 CBOT Corn Prices March 2011 $7.20 Bu

25 CBOT Soybean Prices March 2008 $15.00 Bu

26 CBOT Soybean Prices March 2009 $8.75 Bu

27 CBOT Soybean Prices March 2010 $8.93 Bu

28 CBOT Soybean Prices March 2011 $13.68 Bu

29 CBOT Wheat Prices March 2008 $11.89 Bu

30 CBOT Wheat Prices March 2009 $5.11 Bu

31 CBOT Wheat Prices March 2010 $5.00 Bu

32 CBOT Wheat Prices March 2011 $8.73 Bu

33 Product Farm Price Retail Price % Retail to Farmer 6 pack Beer $0.09 $ % 11 oz Potato Chip $0.08 $ % 18 oz Cereal $0.07 $ % Loaf of Bread $0.13 $ % 3 lb of Carrots $0.81 $ % Gallon of Milk $1.43 $ % lb Bacon $0.47 $ %

34 Pick-your own, usually fruits and vegetables. Pricing on weight or volume. Layout of farm should facilitate ease of access, and parking. Advertising, often a simple roadside sign. Customers expect to pay less than grocery stores. Roadside stand (gates). Best on busy highways, but can cause traffic congestion. Need to be manned. Farmer s markets. Usually sell for a premium, unsold produce often waist. Need to be prepared to travel.

35 Farm Gate Sales

36

37 Marketing contracts are pricing agreements between a producer and contractor before crop harvest. In % of commodity cops in the US were covered by marketing contracts. Hedging futures where the price risk is shifted from the producer (hedger) to one taking the risk (the speculator). Chicago Board Of Trade, Chicago Mercantile Exchange, Minneapolis Grain Exchange. Future options contracts where the hedger pays an insurance against unfavorable price change.

38 Basis contract: An agreement in which grain is delivered and legal title passes to the elevator. The agreement establishes the basis but not the futures price. The producer later selects the day on which they wish to establish the futures price. At that time, the producer will receive the futures price minus the previously agreed upon basis.

39 Delayed payment contract: An agreement in which the price is established and the grain is delivered but payment is postponed until later. It is used to shift taxable income into the following year. Forward contract: An agreement requiring the producer to deliver a specific quantity and quality of grain to the elevator at a specified time and location for a previously agreed on price.

40 Offer contracts: A producer signs a contract with an elevator indicating they wish to sell a specific number of bushels of grain any time cash price reaches a designated price. Price-later (delayed price) contract: An agreement in which grain is delivered and legal title passes to the elevator but price is established later at the discretion of the producer. The price to the producer on any given day is the elevator cash price less a service charge.

41

42 Enterprise diversification where growers produce more than a single crop. i.e. Wheat/barley, corn/soy bean Basic premise is that if one crop fails or has low prices then the costs are spread over the other crops(s). Need higher value alternative crops. Vertical integration is where the farmer retains ownership in two or more production factors. i.e. producing silage and keeping livestock. Cooperative may pull resources to produce processing facilities.

43

44 Value of US exports in 2006 was over $65 million. Most exports are in the form of bulk commodities including wheat, corn, soy beans cotton and tobacco. Canada is the single biggest importer of US farm produce. EU importers: Netherlands, UK and Germany Asia importer: Japan, China, Taiwan, Philippines and Korea. Impacts from many (and complex) trade embargos and Agreements.

45 US dollar cw Euro

46 US dollar cw Japanese yen

47 Production Systems