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Ag markets, prices, and competition
Dr. Victor Martin

The six to 10 day outlook (June 16-20) believe it or not indicates well-above-normal temperatures and below-normal precipitation for our area. This will speed up maturation in wheat and likely negatively affect yield and test weight in areas where wheat is behind the wheat in our area, especially Northwest Kansas. Looking out eight to 14 days (June 18-24) indicates normal to a slight chance of above normal precipitation and above normal temperatures. The drought monitor indicates intensification of drought conditions, especially in southwest part of the state. Barton is still mostly in moderate drought with the eastern third abnormally dry. And the areas which had benefitted from rain are now back to abnormally dry and the area of moderate drought. With a fair amount of agricultural news revolving around the chicken and beef industry and price fixing on the producer and consumer ends, let’s discuss markets and their purpose a bit as we wait for wheat harvest.

Today let’s explore what a market is and what they are designed to do. This will by necessity be condensed and have to leave items out. We have a market economy which is defined as “an economic organization where prices determine how resources and goods are allocated. Consumers in a market economy base decisions on how much to buy on the price of goods.” In a free market with perfect competition there are several guiding principles. A key principle is numerous buyers and sellers. This is key for two main reasons. First, sellers and buyers are “price takers.” They can take or leave the price. Second, they are price takers since there are numerous buyers and sellers so neither can set the price. A lack of either and the few can become “price makers.” A price maker has some, but not absolute, control over the price which is where next week, we will discuss the current problems in the poultry and meat industry. All of this revolves around to economic laws and their relationship to each other.

The “Law of Supply” states “The quantity of goods offered to a market varies directly with the price of the good, holding everything else constant.” In plain English, the amount a seller is willing to sell increases as the price they are offered increases, and vice-versa. The “Law of Demand” states, “The quantity of a good demanded varies inversely with the price of the good, holding everything else constant.”  Again, in plain English, the amount a buyer is willing to purchase goes down as price goes up and vice-versa. Putting these together, both buyer and seller are looking for the same thing – to maximize their satisfaction or to do the best they can with limited resources. When this happens, equilibrium is reached – both buyer and seller are doing the best they can and there is no reason for a price to change until something happens.

We don’t have space here but it involves how surpluses and shortages (where things move away from equilibrium) eventually cause equilibrium to be reestablished. An economist often says the cure for low prices is more low prices and the cure for high prices is more high prices. We will discuss this briefly next week and how concentration in the meat and poultry industry upsets these concepts.


Dr. Victor L. Martin is the agriculture instructor/coordinator for Barton Community College. He can be reached at 620-792-9207, ext. 207.