Economics 235
Introduction to
Agricultural Marketing
John D. Lawrence
Spring 2008
Course Overview
An overview of agricultural and food
markets and marketing systems
and how these are evolving in a
rapidly changing global market
place.
Course Topics
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Overview of food chain structure and
coordination - inputs through retail food
Wholesale and retail marketing
activities, processing, transportation,
margins
Course Topics
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Farm-level price behavior, pricing
systems, and marketing management
Price analysis, futures, options,
contracts, and cooperatives
The role of government in agricultural
markets
Course Objectives
 Understand practical marketing problems and
issues affecting:
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The “bottom line” of a business!
How the system operates and how well!
Resource allocation and efficiency!
Use principles to evaluate current events
Ask and answer, “So what?”
Course Procedures
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Discussion/ lecture combination.
Read or complete the assignments before
coming to class.
Apply principles in analyzing new
marketing issues or problems.
Resource Materials
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Class notes
Reading assignments on web
Basic text for the course:
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The Agricultural Marketing System
Guest speakers occasionally
No cell phones!!!!!
One Required Lab
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Market simulation
One evening 6-9 pm
Two nights to choose from
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Tentatively late February
Class Web Site
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http://www.econ.iastate.edu/
classes/235
http://www.econ.iastate.edu/
faculty/lawrence/
Notes posted
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Presentations can be downloaded and printed
Resource materials and links
Secrets are in the lectures!!!
Contacting Instructor
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John Lawrence
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468 Heady Hall, 294-6290
jdlaw@iastate.edu
Office hours: by appointment
Juan Murguia
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294-6740
murguia@iastate.edu
Grading
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Two mid-term tests
40%
Final exam
20%
Homework, quizzes, project
and class participation
40%
Grading Procedures

Homework due in class on assigned
date
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10% per day late penalty
Test and quizzes will be announced in
class

If you know you will be gone make
arrangements ahead of time
Class Project
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Team project
Farm level analysis
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Marketing plan
Contract evaluation
Strategic decision
Weekly Market Report
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Pick a commodity to follow all semester
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Corn, Soybeans, Cattle, Hogs
Weekly summary due each Tuesday
Less than one page
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Price change
Margin account
Market news
10 points per week possible
Definition
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A market is an arena for organizing
and facilitation business activities.
Define a market
Form
 Place
 Time

What
Where
When
Cash or Spot Market
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When: Immediate or near-term delivery
What: Commodities
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Defined by minimum standards
Often set by USDA
Where: Typically at buyer’s location
 Elevator, processor, auction
Cash or Spot Market Examples
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#2 yellow corn, Heartland Coop at Nevada, January 4,
2008, farmer to first handler.
#1 yellow soybeans, north central Iowa elevators, January
4, 2008, farmer to first handler.
Fed cattle 65-80% Choice, Nebraska feedlots, January 7,
2008, feedlot to packer
Iowa-S. Minnesota 51-52% Lean hogs, plant delivered,
January 7, 2008, farmer to packer.
Medium-Large Frame steers 600-650 pounds, Dunlap Iowa
Auction, January 3, 2008, cowherds to feedlots.
Futures markets
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Today’s price for products to be delivered in the future.
A mechanism of trading promises of future commodity
deliveries among traders.
Biological nature of ag production
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Prices not known when production decision is
made
Processors need year around supply
Futures Market Exchanges
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12 organized exchanges
Two largest
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Chicago Board of Trade (CBOT)
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Chicago Mercantile Exchange (CME)
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Grains, interest rates
http://www.cbot.com/
Livestock, financial, currencies
http://www.cme.com/
Combined for 75% of futures volume
Semester long assignment
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Choose and follow a commodity each week
throughout the semester.
Due each Tuesday
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Report the price, price change and
calculate your margin account based on
Friday’s close.
Brief (less than one page) analysis of
factors that impacted the market the
previous Monday – Friday
Sources for information
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Links also on class web site
Cash
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http://www.ams.usda.gov/LSMNpubs/index.htm
Futures
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http://www.cme.com/
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http://www.cbot.com/
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Right-side menu “VIEW ALL DELAYED QUOTES”
Then left-side menu “CME Commodities”
Right-side menu
Analysis
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http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/
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January 4th, 2008 issue has several suggestions for information
http://www.lmic.info/memberspublic/membersreports.html
http://www.tfc-charts.w2d.com/custom_menu.php3
Due Tuesday Jan 22
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Pick a commodity
Define the cash market and report the price.
Find and report the futures price for the same
commodity for Friday.
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Choose a contract month that expires after the end
of the class.
July or later for corn, wheat, or soybeans
June or later for cattle, feeder cattle and hogs
Futures Market Exchanges
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Trading pits
Centralized pricing
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Buyers and sellers represented
All information represented
Perfectly competitive market
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Open out-cry trading
The futures contract
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A legally binding contract to make or
take delivery of the commodity
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Form (wt, grade, specifications)
Time (delivery date)
Place (delivery location)
Possession (seller delivers, buyer receives)
The futures contract
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Standardized contract
No physical exchange takes place when
the contract is traded.
Deliveries are made when the contract
expires (delivery time)
Payment is based on the price
established when the contract was
initially traded.
Standardized contract
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Certain delivery (contract) months
Fixed size of contract
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Grains 5,000 bushels
Livestock in pounds
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Lean Hogs 40,000 lbs carcass
Live Cattle 40,000 lbs live
Feeder Cattle 50,000 lbs live
Specified delivery points
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Relatively few delivery points
Market position
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Objective: Buy low, sell high
You can either buy or sell initially
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Sell a December Corn contract initially
Deliver corn in December OR,
 Buy back at a later date
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Buy a February Live Cattle contract initially
Take delivery of cattle in February OR,
 Sell back at a later date
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Margin account
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Highly leveraged trades
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Margin is the earnest money that must be
maintained in the trader’s account
Often 5-10% of full value
Margin account settled everyday
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Must maintain account balance
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Margin call
Calculate as if you had to get out of the
market every day.
Margin Account Example
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Corn Contract
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5,000 bushels @ $2.80 = $14,000
Margin = $500
Cattle contract
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40,000 pounds @ $.70 = $28,000
Margin $1,000
Margin Account
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Initial margin: The amount needed to
open and account.
Maintenance margin: The minimum
amount needed to keep and account
open.
“Mark to the Market” at the close of
each trading day.
Margin Account Example
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Initial margin
Maintenance margin
Corn contract (5000 bushels)
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Day 1:
Sell at 4.55
$1,000
$800
Margin Account Example
Day
Price
Chg
G/L
Margin
1
4.54
+.01
+50
1050
2
4.58
-.04
-200
850
3
4.61
-.03
-150
700
Below Maintenance Margin. Must make $300
margin call to restore to initial margin 1000
4
4.52
+.09 +450
1450
Changes reflect the initial “sell” of the contract