Agricultural production & farm supply

AG BM 102

Wicker production, Poland

General Characteristics of U.S. Agriculture

• U.S. has about 5% of world’s people

• 17% of cotton

• 43% of corn

• 60% soybeans

• 6% of land

• 22% of apples

Cotton

Economies of Size in Farming

• Larger farms can specialize more

• Use equipment better

• Spread management over more units

• Get better rates on shipping and purchasing

• For crops maximum size hit limits because of distance

Costs of producing milk by herd size

Family Farms

• Most farms are still family farms• 48,000 PA Farms• 7 have more than 10 stockholders• 117 are not family corporations• Corporate Farming doesn’t work very well• Returns too low• Hired workers don’t work as hard• Hours an issue

Fixed Asset Theory – Once assets are owned they are hard to resell, so farmers will operate at a loss for many years

Biological Time Lags

• Volunteer

• Affect elasticities

Seasonality

• One crop per year

• Must ration output using storage & processing

• Ties prices at different times together

Unique characteristics of farm supply.

• Commodity products - low barriers to entry, no product differentiation

• Often one crop per year

• Perishability- strawberries, cattle - can't sit on product waiting for better price -sell it or smell it.

• Producers small compared to market - price takers

More unique characteristics

• Time lags introduce expectations- don't know price when decision is made

• Short-run versus long-run elasticity

• One crop versus all food - limited amount of land

• Price variability - inelastic supply and demand makes prices variable

• Decreasing real prices

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 20130

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100$

/cw

t.

U.S. Hog Price1980-present

Source: USDA

Source: USDA1980 1985 1990 1995 2000 2005 20100

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Legendmilkcornbeef

Price Index 1980=1

Real Farm Price Indices1980-2014

Concluding Comments

• Today’s class tells why agricultural business is a separate discipline

• Biology & structure of ag affects markets

• Limits choices & behavior

• When people from general business get involved they often don’t understand these issues & lose a lot of money