Econ 337, Spring 2013 ECON 337: Agricultural Marketing Chad Hart Associate Professor...
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Transcript of Econ 337, Spring 2013 ECON 337: Agricultural Marketing Chad Hart Associate Professor...
Econ 337, Spring 2013
ECON 337:Agricultural Marketing
Chad HartAssociate [email protected]
Lee SchulzAssistant [email protected]
Econ 337, Spring 2013
Today’s Topic
Econ 337, Spring 2013
Source: USDA-NASS, http://quickstats.nass.usda.gov/
Econ 337, Spring 2013
Source: USDA-NASS, http://quickstats.nass.usda.gov/
Econ 337, Spring 2013
1
RI 1
2
DE 5
6
NJ 8
10
10
11
MA 12
14
14
NH 14
16
18
18
CT 1929
32
4550
MD 52
52
56
75
78
90
90
93 9699
120
123
123
131
VT 133
175
190
205
263
270
335
371
435
465
540
581 6101265
1780
0 to 1414 to 5050 to 9999 to 270270 to 1781
MILK COWS THAT HAVE CALVED JANUARY 1, 2012(1000 Head)
Livestock Marketing Information CenterData Source: USDA-NASS
U.S. Total: 9230
Top 5 States (2013)
CA = 19.3%WI = 13.8%NY = 6.6%ID = 6.3%PA = 5.8%
Econ 337, Spring 2013
-5
-5
-3
-2-2
-2
-2
-2
VT -2
MA -2
-1
-1
-1
MD -1
-1
NH -1
CT -1
0
0
DE 0
0
00
NJ 0
0
0
RI 0
0
0
0
0
0
0
1
1
1
1
1
2
33
5
6
7
8
10
10
11
13
30
-5 to -1-1 to 00 to 33 to 31
CHANGE IN MILK COWS THAT HAVE CALVED JANUARY 1, 2011 TO JANUARY 1, 2012(1000 Head)
Livestock Marketing Information CenterData Source: USDA-NASS
U.S. Total: 80
Largest Increases (2012-13)KS = 9,000 (7.3%)MI = 6,000 (1.6%)WI = 5,000 (0.4%)
CO = 4,000 (3.1 %)
Largest Decreases (2012-13)NM = -15,000 (-4.5%)OK = -6,000 (-11.5%)PA = -5,000 (-0.9%)KY = -3,000 (-4.0%)
Econ 337, Spring 2013
-65
-50
-45-41
-34-31
MD -28
-27
-27
-20
-20
VT -20
-19
-19
-18
-15
-15
-10
-9
MA -8
-7
NJ -6
-5
-5
CT -5
DE -4
-4-4
-4
-3
NH -3
-1
-1
RI 0
02
4
6
6
10
11
16
21
3033
35
70
110
115
191
-70 to -20-20 to -7-7 to 00 to 200
CHANGE IN MILK COWS THAT HAVE CALVED JANUARY 1, 2003 TO JANUARY 1, 2012(1000 Head)
Livestock Marketing Information CenterData Source: USDA-NASS
U.S. Total: 88
Largest Increases (2004-13)ID = 168,000 (40.8%)TX = 118,000 (37.2%)CA = 80,000 (4.7%)MI = 77,000 (25.7%)CO = 37,000 (37.8%)
Largest Decreases (2004-13)NY = -48,000 (-7.3%)KY = -40,000 (-35.7%)OK = -34,000 (-42.5%)MO = -32,000 (-25.6%)TN = -29,000 (-37.7%)
Econ 337, Spring 2013
Source: USDA-ERS, http://www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx
Econ 337, Spring 2013
Source: USDA-ERS, http://www.ers.usda.gov/data-products/dairy-data.aspx
Econ 337, Spring 2013
Source: USDA-ERS, http://www.ers.usda.gov/data-products/dairy-data.aspx
Econ 337, Spring 2013
Average Milk CompositionSOLIDS Whole Milk Skim Milk
Butterfat 3.50 lbs 0.10 lbs
Protein 3.50 lbs 3.60 lbs
Lactose 4.90 lbs 5.10 lbs
Ash/Minerals 0.70 lbs 0.70 lbs
WATER 87.40 lbs 90.50 lbs
TOTAL 100.00 lbs 100.00 lbs
Econ 337, Spring 2013
Classes of Milk
Source: Dr. Ginder, ISU
CLASS I CLASS II CLASS III CLASS IV
Milk used for beverage purposes
Milk used for “soft” mfg. products and aseptic fluid prod.
Milk used for “hard” cheeses
Milk used for butter and dry milk products
(e.g., whole and reduced fat milk, skim milk, flavored milk, eggnog, fluid buttermilk
(e.g., cream, ice cream, cottage cheese, yogurt, sour cream, dips, cream cheese products, aerosol and whipping cream)
(e.g., hard American cheeses, hard Italian cheeses)
(e.g., butter and butter based spread, whole milk powder, nonfat dry milk)
Poured Spooned Cut with a knife
Spread with a knifeMixed with water or fluid
Econ 337, Spring 2013
Milk Prices by Class
• Given milk’s 4 classes, the Federal government has developed pricing formulas for each class
• The class prices rely on average prices for dairy products, such as butter, cheese, and skim milk
• The class prices are set monthly
• Class I prices are set before the month begins
• Classes II, III, and IV prices are set after the month ends
Econ 337, Spring 2013
Milk Prices by Class• Class I and II prices depend on advanced prices,
dairy product prices before the pricing month, and are announced before the month begins
• Advanced prices are two-week average prices for butter, nonfat dry milk, cheese, and dry whey
• These advanced prices are taken roughly in the middle of the preceding month– So for example, the Class I milk price for March
depends on the dairy product prices from mid-February
Econ 337, Spring 2013
Source: USDA-AMS, http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5100832
Timing of Advanced Prices…
Econ 337, Spring 2013
Milk Prices by Class• The other class (III and IV) prices depend on dairy
product prices during the pricing month, and are announced after the month ends
• These prices are four-to-five-week average prices for butter, nonfat dry milk, cheese, and dry whey
• These prices are taken throughout the month– So for example, the Class III milk price for March
depends on the dairy product prices from March and will not be announced until April
Econ 337, Spring 2013
Timing of Prices…
Source: USDA-AMS, http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5100832
Econ 337, Spring 2013
Class IV PriceClass IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
The formula values 100 pounds of Class IV milk as:96.5 pounds of Class IV Skim Milk and3.5 pounds of Butterfat
The formulas for the other classes follow this rule as well
There are several make allowance and yield factor adjustments in milk pricing
Econ 337, Spring 2013
Class IV PriceClass IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Butterfat Price = (Butter Price – 0.1715) * 1.211
0.1715 is a make allowance, USDA’s estimate of the additional costs to produce butter
1.211 is a yield factor, USDA’s estimate of the conversion from butterfat to butter
Econ 337, Spring 2013
Class IV PriceClass IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Class IV Skim Milk Price = Nonfat Solids Price * 9
9 is a yield factor, USDA’s estimate of the percent of nonfat solids content of skim milk
Econ 337, Spring 2013
Class IV PriceClass IV Price = (Class IV Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Class IV Skim Milk Price = Nonfat Solids Price * 9
Nonfat Solids Price = (Nonfat Dry Milk Price – 0.1678) * 0.99
0.1678 is a make allowance, USDA’s estimate of the additional costs to produce nonfat dry milk
0.99 is a yield factor
Econ 337, Spring 2013
Class IV Price for Feb 2013Class IV Price = f(Butter Price, Nonfat Dry Milk Price)
Butter Price = $1.5438/poundNonfat Dry Milk Price = $1.5559/pound
Butterfat Price = (Butter Price – 0.1715) * 1.211 = $1.6619/pound
Nonfat Solids Price = (Nonfat Dry Milk Price – 0.1678) * 0.99 = $1.3742/pound
Class IV Skim Milk Price = Nonfat Solids Price * 9 = $12.37/cwt.
Class IV Price = (Class IV Skim Milk Price * 0.965) + (Butterfat Price * 3.5) = $17.75/cwt.
Econ 337, Spring 2013
Simplifying Class IV PriceClass IV Price = (Butterfat Price * 3.5) +
(Class IV Skim Milk Price * 0.965)
Class IV Price = (((Butter Price – 0.1715) * 1.211) * 3.5)+ (((Nonfat Solids Price * 9 )* 0.965)
Class IV Price = (((Butter Price – 0.1715) * 1.211) * 3.5)+ ((((Nonfat Dry Milk Price – 0.1678) * 0.99) * 9) * 0.965)
Class IV Price = 4.23850 * Butter Price + 8.59815 * Nonfat Dry Milk Price – 2.16967
Econ 337, Spring 2013
Class III PriceClass III Price = (Class III Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Butterfat Price = (Butter Price – 0.1715) * 1.211
0.1715 is a make allowance, USDA’s estimate of the additional costs to produce butter
1.211 is a yield factor, USDA’s estimate of the conversion from butterfat to butter
Econ 337, Spring 2013
Class III PriceClass III Price = (Class III Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Class III Skim Milk Price = (Protein Price * 3.1) + (Other Solids Price * 5.9)
3.1 is a yield factor, USDA’s estimate of pounds of protein in skim milk
5.9 is a yield factor, USDA’s estimate of pounds of other solids in skim milk
Econ 337, Spring 2013
Class III PriceClass III Price = (Class III Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Protein Price = ((Cheese Price – 0.2003) * 1.383) + ((((Cheese Price – 0.2003) * 1.572) - Butterfat Price * 0.9) * 1.17)
0.2003 is a make allowance, USDA’s estimate of the additional costs to produce cheese
1.383 (1.572) is a yield factor, USDA’s estimate if an additional tenth of protein (butterfat) is contained in a cwt of milk
0.9 is a yield factor, USDA’s estimate of the percent nonfat solids content in milk
1.17 is a yield factor, USDA’s estimate of the ratio of butterfat to protein in cheese
The first part of the protein price reflects the value of the protein in cheese
The second part of the protein price reflects the additional value of butterfat to cheese versus butter
Econ 337, Spring 2013
Class III PriceClass III Price = (Class III Skim Milk Price * 0.965) +
(Butterfat Price * 3.5)
Other Solids Price = (Dry Whey Price – 0.1991) * 1.03
0.1991 is a make allowance, USDA’s estimate of the additional costs to produce dry whey
1.03 is a yield factor, USDA’s estimate of pounds of dry whey obtained from a pound of other solids
Econ 337, Spring 2013
Class III Price for Feb 2013Class III Price = f(Cheese Price, Butter Price, Dry Whey Price)
Cheese Price = $1.6623/poundButter Price = $1.5438/poundDry Whey Price = $0.6393/pound
Butterfat Price = (Butter Price – 0.1715) * 1.211 = $1.6619/pound
Protein Price = ((Cheese Price – 0.2003) * 1.383) + ((((Cheese Price – 0.2003) * 1.572) - Butterfat Price * 0.9) * 1.17)
=$2.9610/poundOther Solids Price = (Dry Whey Price – 0.1991) * 1.03
= $0.4534/poundClass III Skim Milk Price = (Protein Price * 3.1) + (Other Solids Price * 5.9)
= $11.85/cwtClass III Price = (Class III Skim Milk Price * 0.965) + (Butterfat Price * 3.5)
= $17.26/cwt
Econ 337, Spring 2013
Class II PriceClass II Price = (Class II Skim Milk Price * 0.965) +
(Class II Butterfat Price * 3.5)
Class II Butterfat Price = Butterfat Price + $0.007
Class II Butterfat Price depends on Butterfat Price from Class III & IV
Class II Skim Milk Price = Advanced Class IV Skim Milk Pricing Factor + $0.70
estimate of the cost of drying condensed milk and re-wetting the solids in Class II products
Econ 337, Spring 2013
Class II Price for Feb 2013Class II Price = f(Butterfat Price from Class III & IV,
Advanced Class IV Skim Milk Pricing Factor)
Advanced Class IV Skim Milk Pricing Factor = $12.41/cwtButterfat Price = $1.6619/pound
Class II Butterfat Price = Butterfat Price + $0.007 = $1.6689/pound
Class II Skim Milk Price = Advanced Class IV Skim Milk Pricing Factor + $0.70 =$13.11/cwt
Class II Price = (Class II Skim Milk Price * 0.965) +(Class II Butterfat Price * 3.5)
= $18.49/cwt
Econ 337, Spring 2013
Class I PriceClass I Price = (Class I Skim Milk Price * 0.965) +
(Class I Butterfat Price * 3.5)
Class I Skim Milk Price = Higher of Advanced Class III or IV Skim Milk Pricing Factors +
Applicable Class I Differential
Class I Butterfat Price = Advanced Butterfat Pricing Factor + (Applicable Class I Differential /
100)
Applicable Class I Differential = Adjustment for Location
Econ 337, Spring 2013
Source: USDA-AMS, http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELDEV3101903&acct=dairy
Class I Price Differentials
Econ 337, Spring 2013
Class web site:http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2013/index.htm