Download Alternative Product Forms

Alternative Markets
AG BM 102
Introduction
• How do you decide what to do with the
product you produce?
• Where do you sell it?
• Do you store it?
• If you process it, what do you make?
The simple answer is “whatever
will make you the most money”
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Most farm products have several outlets
Total demand is sum of uses
But need to transform to farm quantities
Easier said than done
Today learn how
Initial Situation
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One farm product - milk
Two uses – fresh milk & cheese
Know demand for each
Using derived demand can take retail
fresh milk demand and make it farm milk
demand
• How about cheese?
Changing units of measure
n  (number units
finished ) / (number of units raw)
Qfin  nQraw
Pr aw  n( Pfin  Cproc)
• This allows you to convert product prices
to raw material price
• If Price product is $3.00 how much can
you afford to pay for raw materials?
• If price raw materials is $1.50, how much
does product price have to be to make
money?
• How many pounds of apples does it take
to make a case of applesauce?
Some notes about changing units
• Have to think carefully
• Will the new price be higher or lower?
• Will the new quantity be higher than
lower?
• They should move in opposite directions
• However, farm demand is a direct
transformation of retail demand
The product equilibrium
• Add demand curves together
• Each is quantity = f(price)
• Add quantities – means you sum
horizontally
Examples
• Applesauce & Apples
• Potatoes, potato chips, and frozen french
fries
• Corn for feed, corn oil, ethanol, etc.
• Wheat for food, feed, & seed
Total market
• Add all uses
• Adjust for all locations – put all prices on a
Chicago level
• Remember storage is one use of the
product
Concluding Comments
• Need to be able to transform farm prices
to retail prices and the reverse
• Must get all components of usage on the
same terms
• Market allocates products to various uses
• Part of law of one price – big market
includes various product forms, various
places, and various time periods