Farm Transactions

AG BM 102

Coffee Market

• Article in NY Times

• Farm price – 24 cents per pound

• Retail price - $3.60 per pound

• Processors – Kraft, Sara Lee, Proctor & Gamble, Nestle – have half of market

• Annual exports have fallen $4 bil. since 1997, since end of coffee agreements

Coffee

• 660 mil. lbs of low quality beans in storage

• Estimated destroying these would increase farm revenues by $750 million

• Big firms not interested & don’t want International Coffee Organization (exporting group) to interfere

Farm Inputs

Introduction

• Modern agriculture involves lots of purchased inputs

• Machinery, equipment, fertilizer, chemicals, fuel, seed, semen, feed, credit

• The input industry is part of the system

• Often a very integrated part

Wenger Feeds

• Sells feed for broilers, eggs, and hogs

• Thousands of formulations

• Works with producer to solve problems – shell strength

• Big customer base – lots of deliveries – 24 hours per day

• Can’t let anyone run out of feed

Wenger Feeds

• Limited storage space – need to schedule corn and other raw material deliveries well – a couple days of corn

• Rail or truck?

• New sites

Livestock (7.90%)

Fuel (3.30%)

Feed (14.00%)

Rent (10.20%)

Supplies, Repairs, & Construction (10.20%)

Labor (10.10%)

Machinery, Vehicles (6.80%)

Chemicals, Fertilizer, & Seeds (14.60%)

Farm Services (13.40%)

Interest, Taxes (9.50%)

Farm Production Expenditures1997

In General, Input supplier

• Works with farmer to help farmer succeed

• Provides advice

• Lots of service

• Not like supermarket – choose, buy, & leave

• Tries to have flow of business

Employs PSU Grads

• Fertilizer

• Pesticides

• Feed

• Pharmaceutical products

• Credit

• Lots more

Need College Grads

• Technical issues

• Integration of lots of factors

• Need to be able to understand company’s research

• Work within system

Integration

• Contracts tie inputs to outputs

• Chickens, hogs, vegetables

• Food safety requirements for drugs, sprays, etc.

Coops in Farm Supply

• Long history• Spatial monopoly• Some have done well• Others struggled• Agway, Farmland• Very competitive – success requires good

management & efficient operation• Usually ease of entry

Other Comments About Input Markets

• Quality of output related to use of inputs

• Quality, timing, appropriateness

• Advice can be a big factor here

• Farm services – milk testing, feed testing

• No farmer stands alone!

• Also, without farmers no input industry – can’t pursue strategy of getting rich at farmer’s expense

Other Comments About Input Markets

• Small farmers at a disadvantage here

• However, most farmers small compared to seller

• Higher input costs make it harder to compete

• Doing a good job here can really help profitability

Farm Outputs

Introduction

• You have produced the product – now what?

• How much is it worth?

• How can you get the most for it?

• What are your choices?

• I hope you have thought about this before

How much is it worth?

• How do you get the price?

• Lancaster Farming

• Internet

• Calling known markets

• Talk to your neighbors

• Futures markets

Ayrshire Auction

What is your quality?

• All corn, milk, cattle, and apples are not alike

• Some get premiums, some get discounts

• How much are the premiums and discounts?

• How can you move up a step?

• What will it cost you?

• Is it worth it? Premium vs. costs

How can you get the most for it?

• Consider several alternatives

• Work out math – hauling fees, charges & commissions, time

• Is a bit more worth souring a relationship?

What are your choices?

• Locally

• In general area

• Neighboring states

Plan Ahead

• Should have a market in mind when decision to produce is made – and have talked to them

• Can change mind

• Is a contract possible? Worthwhile? Essential?

• Market identification essential for unusual things – Agriculture Alternatives

Marketing for small farms

• Market access a particular problem

• Also costs per unit are higher – less than truckload lots

• Often need to go through auctions – prices may be lower

• Pool with neighbors if others raise the same thing

Leola Produce Auction

Direct Marketing

Tuscarora Organic Growers

• Jim Crawford – southern Huntingdon County – Organic vegetables

• Sold at site in Baltimore – marketing was taking a lot of time – limit to what market could absorb

• Joined forces with other growers

• Formed cooperative

TOG

• Plan production – deliver to staging point

• Cooperative sells in Washington – develops market

• Members keep traditional clients & markets

• Cooperative broadens customer base

Market Access in Serbia

Farmer Transactions

• Often few choices

• Usually no market power

• Direct sales to consumer rarely feasible

• Information essential

• Planning ahead important

• Understand your alternatives