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Market Equilibrium Fundamentals

Market Equilibrium Fundamentals . Internal and external forces influencing the demand for a particular commodity Internal and external forces influencing supply Market equilibrium Example of US corn market. A nation’s food and fiber system consists of four sectors that provide

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Market Equilibrium Fundamentals

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  1. Market Equilibrium Fundamentals Internal and external forces influencing the demand for a particular commodity Internal and external forces influencing supply Market equilibrium Example of US corn market

  2. A nation’s food and fiber system consists of four sectors that provide food and fiber products to their ultimate consumer.

  3. The farm input supply sector supplies variable and fixed inputs to farmers and have market power to establish the price.

  4. Crop and livestock farmers sell their production into the food and fiber processing sector which also has power to influence price.

  5. Processed food and fiber products move through wholesale and retail marketing channels.

  6. The ultimate consumers of food and fiber products include households, businesses, governments and overseas buyers.

  7. Let’s Focus on the US Corn Market

  8. Annual Supply and Use of Corn Local labor market Food use Food manufacturers Feed use Feedlot operations John Deere, Pioneer Seed Monsanto US corn farmers Fuel use Ethanol producers Exports Foreign countries Local banker Storage Elevators and bins Page 90

  9. Growth in Demand for US Corn * USDA latest projection for 2007.

  10. Page 90

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  12. Historical perspective on crude oil prices PDVSA strike Iraq war Asian growth Iran/Iraq War Iranian Revolution Source: U.S. Department of Energy

  13. Merging Demand and Supply Factors that change demand: • Other prices • Consumer income • Tastes and preferences • Real wealth effect • Global events D* Price D S PE* PE Quantity QE* QE

  14. Merging Demand and Supply S* Factors that change supply: • Input costs • Technology • Government policy • Price expectations • Weather & disease • Global events Price D S PE* PE Quantity QE* QE

  15. External Forces • Farmers must form expectations about future price trends when investing • Many forces are beyond their control • Understanding these market forces requires knowledge of the domestic and global economies

  16. Any Questions?

  17. Understanding Macro Forces M A C R O E C O N O M Y Local labor market Food use Food manufacturers Feed use Feedlot operations John Deere, Pioneer Seed Monsanto US corn farmers Fuel use Ethanol producers Exports Foreign countries Local banker Storage Elevators and bins Page 90

  18. Macroeconomic “Big 5” • The rate of growth in economy (consumer income) • Interest rates • Inflation rates • Unemployment rate • Exchange rates and global demand

  19. Let’s Look at the Macro Economy

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