Agricultural production & farm supply

1. Agricultural production & farm supply Wicker production, Poland AG BM 102

2. 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

3. 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

5. Costs of producing milk by herd size

6. 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 low • Hired workers don’t work as hard • Hours an issue

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

9. Biological Time Lags • Volunteer • Affect elasticities

10. Seasonality • One crop per year • Must ration output using storage & processing • Ties prices at different times together

11. 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

12. 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

14. Source: USDA

15. 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 miss these issues & lose a lot of money