The market goes up and the market goes down. We don’t have to be economists or involved in trading markets to know that supply and demand of a product or service go hand-in-hand. When there is an abundant supply; demand is usually lower and prices are usually lower. When supply is low; demand is often much greater and costs tend to rise. Supply and demand is cyclical based on many factors. In agriculture we want to produce a large quantity and sell at a maximum price. As a consumer we want a large supply or variety of product and low prices.
It’s important to note that supply and demand in one industry has a ripple effect to other industries and vice versa because the basic input costs are similar for most everyone (i.e. labor, maintenance, etc.). Supply and demand depends on many factors that are constantly changing and it won’t always follow the traditional up and down approach. Sometimes supply and prices will both be high at the same time.
Example of Supply & Demand: Tractor Market
When the commodities/livestock market is high, agricultural producers generally have excess funds to spend because they made a profit (Income-Expenses=Profit). Thus they are more likely to buy more tractors in a good agricultural economy. Currently the agricultural industry is in a slow economy and fewer tractors are being sold because famers have very little to no excess funds for capital purchases.
Thus from the tractor dealer/manufacturers side they are currently sitting on a larger inventory of tractors. Supply is high and demand is low. In this case because of the cost to manufacture and market tractors; prices will not likely decrease. Tractor businesses still have to operate their businesses as general operating costs continue and a decrease in sales means a decrease in profit. Thus we see a ripple effect from one industry to the next because when one industry does poorly, it affects the economic health of the next industry, and so on.
Common Factors Affecting Supply & Demand:
-Weather patterns, natural disasters, disease, or pests.
-Trade agreements and production standards.
-Economic downfalls or uptrends in countries for many reasons including war, leadership changes, changes to policies and regulations, etc.
-Consumer preferences and changing trends.
-Uses of the product and competing products and markets.
-Changes to technology and production costs.
-Financial stability of individual producers or companies.