What exactly is "Market Price*"?

The market price or "going rate" is a value for goods or services that are dictated by supply and demand in a free market. This week, we are breaking down what market pricing actually means. What influences prices? Why does it change all the time?

*This may not be the process taken by all growers but is based on knowledge and experience with our farming partners.*

First we must look at supply. Some farms and shippers divvy up their season's anticipated harvests to contract sales and sales to the free market.

Contracts

Some farms and shippers choose to dedicate a portion of their crop yields to big-box retail chains. Usually, this requires the grower to commit to production volumes, the timing of production, and set pricing. This is the reason why supermarket pricing can stay the same. This may give the farmer and shipper ease of mind since a portion of their crop is sold. However, there may be big penalties if production is not met. (Can we really depend on the weather?)

Free Market

Farmers and shippers may dedicate the other portion of the crop yields to the free market. Free to support businesses of all sizes! They can sell as much crop as they did like to whomever they like wherever! Sales commitments are made as your crops grow, so there are no penalties if the weather is not exactly as forecasted (Never happens, am I right?) and your crops spring too soon or not soon enough. Pricing is based on the supply and demand of where your products are sold. Growers are able to reduce waste by packing and shipping different sizes and quality standards to appropriate customers.

Price Influencers

What influences prices? It comes down to basic supply and demand, its own little mini economy. Here are some examples:

Supply

Favorable weather in the growing region increases supply (Price decreases)

Unfavorable weather in the growing region reduces supply (Price increases)

Holiday labor shortages reduce the ability to pack crops and reduce supply (Price increases)

Holiday freight shortages and rate increases reduce the ability to deliver supply (Price increases)

Overlap of supply from different growing regions oversaturates the market (Price decreases)

Demand

Bad weather at selling territory reduces demand (Price decreases)

Holidays and weather increase demand for specific items - example: watermelon sales increase during summertime (Price increases)

Product marketing and trend increases demand for spotlight item (Price increases)

What makes up the market price?

How do we get to a price on produce? Every dollar is accounted for. We don’t make this stuff up! The total cost of crop production to your door:

$5 + (Land, cost of seeds, plant protection, equipment/machinery maintenance)

$2 to $3 + (Labor to pick and pack)

$2 to $3 + (Cost of carton boxes, pallets, packaging materials)

$4 to $6 + (Freight cost for delivery to selling region)

$3 to $6 + (Additional supply chain costs for distribution to end-user)

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$16 to $23+

*General estimation to awaken senses on costs on a per case (~20lbs-ish) basis

*Costs will vary widely depending on growing region and product