Agricultural Marketing ECON 337: Agricultural Marketing Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356 Chad Hart Associate Professor chart@iastate.edu 515-294-9911 1

Example Transaction for Marketing Report Details Cash Price Basis Gross Revenue Net Return after Prod. Costs Futures/Options Return Storage and Opportunity Costs Final Net Return

10,000 Bushels of Soybeans Stored at Home Timeline Harvested Nov. 1 Hedged with futures Jan. 20 Offset hedge and sold Mar. 4 So the beans were in storage for 4.15 months

Relevant Prices and Costs Cash Prices: Nov. 1 $12.30 Mar. 4 $13.77 Basis at Sale: -$0.47 Prod. Costs: -$9.95 Futures Prices: Jan. 20 $12.95 Mar. 4 $14.24 Storage Costs: $0.01/month Interest Rate: 7.5%

Costs of Ownership Storage Costs Opportunity Costs 4.15 months * $0.01/bu/month * 10,000 bu $415 or $0.0415/bu Opportunity Costs (4.15/12) * $12.30/bu * 7.5% * 10,000 bu $3,190.31 or $0.3190/bu Total $3,605.31 or $0.3605/bu

Futures/Options Return Sold May ’14 Futures on Jan. 20 @ $12.95 Offset by buying May ’14 Futures on Mar. 4 @ $14.24 Paid broker $0.01/bu for the service Per Bushel Return: ($12.95 - $14.24) - $0.01 = -$1.30 Total Return on Hedge: -$13,000

Final Tally for Sale Per Bushel Total Cash Price $13.77 $137,700.00 Production Cost -$ 9.95 -$ 99,500.00 $ 3.82 $ 38,200.00 Costs of Ownership -$ 0.3605 -$ 3,605.31 $ 3.4595 $ 34,594.69 Futures/Options Return -$ 1.30 -$ 13,000.00 Final Net Return $ 2.1595 $ 21,594.69

10,000 Bushels of Soybeans Stored at Coop Timeline Harvested Nov. 1 Sold Mar. 4 So the beans were in storage for 4.15 months

Relevant Prices and Costs Cash Prices: Nov. 1 $12.30 Mar. 4 $13.77 Basis at Sale: -$0.47 Prod. Costs: -$9.95 Storage Costs: $0.03/month Interest Rate: 7.5%

Costs of Ownership Storage Costs Opportunity Costs 4.15 months * $0.03/bu/month * 10,000 bu $1,245 or $0.1245/bu Opportunity Costs (4.15/12) * $12.30/bu * 7.5% * 10,000 bu $3,190.31 or $0.3190/bu Total $4,435.31 or $0.4435/bu

Final Tally for Sale Per Bushel Total Cash Price $13.77 $137,700.00 Production Cost -$ 9.95 -$ 99,500.00 $ 3.82 $ 38,200.00 Costs of Ownership -$ 0.4435 -$ 4,435.31 Final Net Return $ 3.3765 $ 33,764.69

Final Tally for All of My Soybeans Per Bushel Total Cash Price $13.77 $275,400.00 Production Cost -$ 9.95 -$199,000.00 $ 3.82 $ 76,400.00 Costs of Ownership -$ 0.402 -$ 8,040.62 $ 3.418 $ 68,359.38 Futures/Options Return -$ 0.65 -$ 13,000.00 Final Net Return $ 2.768 $ 55,359.38

Now Moving the New Crop

Estimate 2014 Production Costs

Estimate 2014 Production Costs

Other Information/Decisions Expected Production Futures Hedges Options Forward Sales Crop Storage Crop Insurance Farm Bill Programs

Have a great weekend. See you Tuesday. Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2014/ Have a great weekend. See you Tuesday.