Government Agricultural Programs
The US Government operates several programs that influence the prices of agricultural products. The US government through the use of tariffs, subsidies and acreage control programs can strongly influence the supply and pricing for certain commodities. When the government levies a tariff on imported commodities it will make those commodities coming from other countries less competitive and as a result will increase demand for the domestically grown products. This should have a stimulative effect on prices for the commodity. Should the government lower the tariff on a given commodity foreign growers may flood the market with the commodity and drive prices down. Governmental subsidies tend to set a minimum price for the given commodity. These subsidies are designed to help ensure that the producers of the commodities can sell the commodity in the market at price the is higher than the cost to grow the commodity.
SecuritiesCE Explains Government Agricultural Programs
Acreage control programs are designed to limit the amount of the commodity that will be grown each year and therefore limit supply. The reduced supply will generally tend to provide support to the price of the commodity in the in the market. The Government through the use of acreage control programs pay farmers not to produce the commodity on some or all of their available farm land. The US Department of Agriculture operates The Commodity Credit Corporation or CCC to provide financing to farmers who grow and produce many of the commodities we use every day. Farmers may pledge their harvested and stored crops as collateral for loans. The CCC provides farmers with loans that may be renewed annually for terms of up to three years. The sole collateral for the loans are the stored commodities. Should the farmer default on the loan the CCC has no recourse other than taking possession of the pledged commodity. Liquidation of the commodities by the CCC is strictly regulated. The CCC may not sell the commodity in the open market in any way that would compete with domestic commodity producers. The CCC may only liquidate the forfeited commodity if the commodity is in immediate danger of spoiling. These are just some of the concepts you will need to master to pass the series 3 exam. Commodities futures pricing is a heavily tested concept on the series 3 exam and these programs are just some of the factors that influence prices.