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. 15 Offset hedge and sold Apr. 12 So the beans were in storage for 5.4 months

Relevant Prices and Costs Cash Prices: Nov. 1 $15.00 Apr. 12 $14.10 Basis at Sale: -$0.03 Prod. Costs: -$9.95 Futures Prices: Jan. 15 $13.9975 Apr. 12 $14.13 Storage Costs: $0.01/month Interest Rate: 7.5%

Costs of Ownership Storage Costs Opportunity Costs 5.4 months * $0.01/bu/month * 10,000 bu $540 or $0.054/bu Opportunity Costs (5.4/12) * $15.00/bu * 7.5% * 10,000 bu $5,062.50 or $0.50625/bu Total $5,602.50 or $0.56025/bu

Futures/Options Return Sold May ’13 Futures on Jan. 14 @ $13.9975 Offset by buying May ’13 Futures on Apr. 12 @ $14.13 Paid broker $0.01/bu for the service Per Bushel Return: ($13.9975 - $14.13) - $0.01 = -$0.1425 Total Return on Hedge: -$1,425

Final Tally Per Bushel Total Cash Price $14.10 $141,000.00 Production Cost -$ 9.95 -$ 99,500.00 $ 4.15 $ 41,500.00 Costs of Ownership -$ 0.56025 -$ 5,602.50 $ 3.58975 $ 35,897.50 Futures/Options Return -$ 0.1425 -$ 1,425.00 Final Net Return $ 3.44725 $ 34,472.50

Historical Comparison

Historical Comparison Average $0.41/bushel

Have a great VEISHEA weekend! Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2013/ Have a great VEISHEA weekend!