Wednesday, July 23, 2014

Nice article: A simple technology allows farmers to become Price Makers, not Price Takers

In AP Microeconomics we have a unit on the market structure "Perfect Competition".  One of the main characteristics of a firm that operates in this market is the firm is a "Price Taker"---they are too small to demand a particular price in the market and by themselves their quantity supplied is not enough to influence the price either.  They must take the market price offered to them and reconcile it their cost of production.

In an effort to try to get a higher price OR to wait and see if a higher price is in the offering at a later date, some farmers store their grains in giant silos.  If you travel the back roads of the mid-West this is a pretty common sight.

These large, physical structures are limited in their capacity and expensive to build and maintain on the supply side, and expensive to rent on the demand side.

A new-ish advancement in portable storage is about to become more popular and noticeable in rural areas. It is a much less expensive way to store harvested grains AND if enough additional farmers employ this technique it may allow farmers to gain pricing power and become a "Price Maker" instead of a "Price Taker".

Creative Destruction---it is a wonderful thing!

U.S. grain farmers resort to giant storage bags to avoid cheap sales (HT: Big Picture Agriculture)

As U.S. farmers turn in record grain crops this autumn, many will have a powerful new tool - giant sausage-shaped storage bags - to help them avoid the lowest prices in years and gain more control over trade with giants such as Cargill Inc.
Demand has surged this summer for the white polyethylene bags the length of a football field and the equipment required to fill them, according to manufacturers and wholesalers. 
They allow farmers to store millions of bushels of corn and soybeans at a fraction the cost of conventional silos and far more efficiently than leaving grain in the open air. 
The bags, which are about 300-foot (91-m) long and 10 feet in diameter, are common on the Argentine Pampas but until recently a rare sight in the U.S. Midwest, where the expansion of big elevators and 50-foot high silos has generally kept pace with ever-expanding crops. 
But with many bins still overflowing with last year's crop in the world's top grain grower, farmers are snapping up these systems as a practical necessity ahead of bumper harvests, and as a safeguard against another winter of railroad delays.
They may also be a sign that farmers will not be rushed into dumping their harvests quickly. Prices for corn to be harvested in autumn have tumbled as much as 18 percent so far this year, leaving growers hoping for a rebound.  (Click HERE to read more)
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