Marketing

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Marketing

• Chapter 7

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What is Marketing?

• All the economic activities involved in preparing
  and positioning the product for the final consumer

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What is Utility?

• Customer satisfaction
• consumer needs

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Form Utility

• In what form is a product available
• Whole chicken
• Chicken parts
• Cooked chicken
• Each step adds value

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Place Utility

• Where is a product available
• Convenience

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Time Utility

• When is a product available

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What percentage of the final product does the
producer receive?

• Dairy farmer 34 for milk
• Grain products 9

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What is the Law of Demand?

• At any point in time, the rational consumer will
  take more only at a lower price.
• Ex How many hamburgers would you buy at 2?
• How many hamburgers would you buy at 1?
• How many hamburgers would you buy at 50 cents?
• How many hamburgers would you buy at 25 cents?

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Law of Demand
Price
Demand
Quantity
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What is the Law of Supply?

• Producers are willing to offer more only at a
  higher price
• Ex How many acres of wheat will you plant if
  wheat is worth 2 / bu.?
• How many acres of wheat will you plant if wheat
  is worth 4 / bu.?
• How many acres of wheat will you plant if wheat
  is worth 8 / bu.?

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Law of Supply
Supply
Price
Quantity
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Law of Supply Demand
Supply
Price
Demand
Quantity
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What is Equilibrium Price?

• Price is determined where supply and demand
  curves intersect

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Law of Supply Demand
Supply
Price
Demand
Quantity
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What is Price Discovery?

• The process of searching for the Equilibrium
  Price
• Many things involved that can alter supply and
  demand
• Government incentives
• Weather
• World Trade
• Surplus

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How does change in supply affect price, if demand
stays the same?
Supply 1
Price
Supply 2
Demand
Quantity
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Economies of Size

• Within Limits, larger businesses (farms) can
  produce at a cheaper cost per unit of production
• Eventually, as business becomes too large, costs
  increase

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Futures Market
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Futures Contract

• Futures Contract a contract calling for
  delivery of a carefully described commodity at
  some later time
• Not intended for actual delivery of commodity,
  but price discovery for later period
• Method of transferring risk of cash market of
  producer to speculator in futures market

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Basis

• The difference between cash market and futures
  market
• Cash - Futures Basis
• usually negative

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Forward Pricing

• Forward Contract a contract which locks in a
  price for later delivery
• Forward Price Futures Price Basis
• Ex Futures Contract 3.10
• Basis -20 cents
• Forward Price 3.10-.20 2.90

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What are Put Options?

• The Right to sell futures contracts at specific
  prices.
• Strike Prices offered in 10 cent intervals for
  corn
• Want to buy a Put Option for 3.10 corn
• Basis -.20 Premium .12
• Price Floor Strike Price Basis - Premium
• Price Floor 3.10 - .20 - .12 2.78

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What are Put Options?

• What if price goes up?
• Futures 3.50 Cash 3.30
• Net Price Cash Price Option Value - Premium
• Net Price 3.30 0 - .12 3.18
• What has the Put Option accomplished?

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What are Put Options?

• What if the price goes down?
• Futures 2.50 Cash 2.70
• Net Price Cash Price Option Value - Premium
• Net Price 2.70 .40 - .12 2.78
• What has the Put Option accomplished?

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