The Role of Policy in the Determination of Prices 

Changes in policies (agricultural or not) are an important determinant of market patterns and trends. Therefore, they should not be overlooked by market analysts, regardless of whether they use a fundamental or historical analysis. In a fundamental analysis, the role of policies is clear: Policies usually result in either supply or demand changes (or both). Their importance is marked although more nuanced in a historical analysis; for example, a sudden shock in demand or supply due to a change in policy (or a shock in prices) may lead to unusual fluctuations. Time series regression methods may not be able to account for these fluctuations properly, unless you are aware of their existence. As a consequence, unusual patterns in charts may be difficult to interpret regarding stakeholder behavior variations.

There are countless sources that you can rely on to acquire information on relevant policies. For example, the Farm Service Agency provides considerable information to farm operators regarding associated policy changes. Sector-specific organizations provide policy information on their sectors. One example is the International Dairy Foods Association, which discusses major dairy sector political issues.

Federal Marketing Orders

One type of policy that you should pay special attention to in your analysis is federal marketing orders. Historically, federal marketing orders function as a way to control local fluctuations in commodity prices. They do this by setting a minimum selling price, or a price floor. More recently, federal marketing orders have started to focus on standardizing production practices and providing technical support to farmers.