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GGR287 W4 Lec.doc

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University of Toronto Mississauga
Pierre Desrochers

GGR287 Week 4 Lecture Jan 28 - Commodities 1. Concepts, Technologies & Markets Commodity: • physical substance (eg, grains) • interchangeable with another product of same type • investors buy or sell through different means • price subject to supply & demand Landrace: • local variety of domesticated animal or plant species • developed largely by natural processes (adaptation to its natural & cultural environment Breed (formal) • bred deliberately to conform to a particular standard type Key point: • many formal breeds originated from landraces. (sometimes, a particular type has both landrace & formal breed populations.) Production & Incentives Agricultural Production (means to ends): "Improvements" • For everything: better taste, better appearance, greater disease/weather resistance • Plants: higher yields, shorter growing season, longer shelf life and resistance to transportation • Animals: better feed to meat/dairy/eggs ratio Agricultural "improvements" • selections, breeding, hybridization, grafting, radiation exposures, chemically-induced mutations (carcinogenic chemicals), rDNA (GMO) technologies Standards, Grades & Brands Commodities "undifferentiated", but S&G. Why? 1. producers of quality output obtain maximum value 2. customers know exactly what they are getting 3. handling & transportation done more efficiently by combining similar goods from different producers Brands. Why? 1. To address "adulteration" & guarantee quality 2. Customer recognition & loyalty Markets Sport (or cash) market: • public financial market Futures Markets Futures Contract: • standardized agreement between buyer & seller • to exchange an amount & grade of an item (underlying asset) • at specific price
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