ECON 337 Agricultural Marketing Chad Hart Associate Professor

ECON 337: Agricultural Marketing Chad Hart Associate Professor chart@iastate. edu 515 -294 -9911

Chad Hart Associate Professor chart@iastate. edu 515 -294 -9911 Heady 478 F Class Time: TR 9: 30 -10: 20 am East 119 Lab Time: T 2: 10 -4: 00 pm Heady 68 Office Hours: By appointment Class web site: http: //www 2. econ. iastate. edu/~chart/Classe s/econ 337/Spring 2017/

Guidelines and rules: Ø No cell phone calls or texting in class or lab Ø Labs are difficult to reschedule Ø Class attendance is recommended Course reading and resource materials will be available online Grading: Ø Two exams 40% Ø Homework assignments and quizzes 30% Ø Marketing plan project and report 30%

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

Marketing A series of events and services to create, modify, and transport a product from initial creation to consumption Possible steps: ØPlanning ØProduction ØInspection ØTransport ØStorage ØProcessing ØSale Market players: ØProducers ØElevators ØProcessors ØTransport companies ØBanks/Insurance companies ØTraders ØFeeders

Market Functions ØLocation Where do you want it? ØTime When do you want it? ØForm How do you want it? ØPrice discovery What will you pay for it?

Cash Markets A market where physical commodities are traded ØLocal elevators ØEthanol plants & soybean crushers ØRiver terminals ØFeeders/feed mills

Futures Markets A market where contracts for physical commodities are traded, the contracts set the terms of quantity, quality, and delivery ØChicago: Corn, soybeans, cattle, hogs ØAlong with wheat (soft red), oats, rice ØKansas City: Wheat (hard red winter) ØMinneapolis: Wheat (hard red spring) ØTokyo: Corn, soybeans, coffee, sugar ØHas a market for Non-GMO soybeans ØOther markets in Argentina, Brazil, China, and Europe

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

Market Activities ØPricing the commodity ØEstablishing contracts ØMerchandising the commodity among uses ØTransporting the products ØStoring the products ØManaging and controlling the products ØManaging production and price risks

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.

Price Determination and Price Discovery S P Pe D Qe Q

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

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

Agricultural Futures Markets ØHas some unique features due to the nature of agricultural businesses ØSupply comes online a few times during the year ØSo at harvest, supply spikes, then diminishes until the next harvest ØProduction decisions are based price forecasts ØPlanting decisions can be made a full year (or more) before the crop price is realized ØUsers provide year-round demand ØLivestock feeding, biofuel production, food demand

Futures Market Exchanges ØCompetitive markets ØOpen out-cry and electronic trading ØCentralized pricing ØBuyers and sellers are both in the market ØRelevant information is conveyed through the bids and offers for the trades ØBid = the price at which a trader would buy the commodity ØOffer = the price at which a trader would sell the commodity

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

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

Class web site: http: //www 2. econ. iastate. edu/~chart/Classes/econ 337 /Spring 2017/ Lab in Heady 68 @ 2: 10 pm.