Agricultural Marketing ECON 337: Agricultural Marketing 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

25,000 Bushels of Corn Stored at Home Timeline Harvested Nov. 1 Hedged with futures Jan. 16 Offset hedge and sold Mar. 29 So the corn was in storage for 5 months

Relevant Prices and Costs Cash Prices: Nov. 1 $3.02 Mar. 29 $3.42 Basis at Sale: -$0.46 Prod. Costs: -$3.27 Futures Prices: Jan. 10 $3.57 Mar. 29 $3.88 Storage Costs: $0.01/month Interest Rate: 5%

Costs of Ownership Storage Costs Opportunity Costs 5 months * $0.01/bu/month * 25,000 bu $1,250 or $0.05/bu Opportunity Costs (5/12) * $3.02/bu * 5% * 25,000 bu $1,572.92 or $0.0629/bu Total $2,822.92 or $0.1129/bu

Futures/Options Return Sold 5 May ’17 corn futures on Jan. 16 @ $3.57 Offset by buying 5 May ’17 corn futures on Mar. 29 @ $3.88 Paid broker $0.01/bu for the service Per Bushel Return: ($3.57 - $3.88) - $0.01 = -$0.32 Return on Hedge: -$8,000.00

Final Tally for On-farm Corn Per Bushel Total Cash Price $3.42 $85,500.00 Production Cost -$3.27 -$81,750.00 $0.15 $ 3,750.00 Costs of Ownership -$0.1129 -$ 2,822.92 $0.0371 $ 927.08 Futures/Options Return -$0.32 -$ 8,000.00 Final Net Return -$0.2829 -$ 7,072.92

25,000 Bushels of Corn Stored at Coop Timeline Harvested Nov. 1 Sold some Jan. 16 Sold more Feb. 5 Sold on forward contract Feb. 20 Delivered on forward contract Mar. 1 Sold the rest Mar. 29 Some of the corn was stored for 2.5 months, some for 3.2 months, some for 4 months and the rest was in for 5 months

Relevant Prices and Costs Price Basis Relevent Prices: Nov. 1 $3.02 Jan. 16 $3.04 -$0.44 Feb. 5 $3.17 -$0.42 Feb. 20 $3.25 -$0.40 Mar. 29 $3.42 -$0.46 Prod. Costs: -$3.27 Storage Costs: $0.03/month Interest Rate: 5%

Costs of Ownership Storage Costs Opportunity Costs 2.5 months * $0.03/bu/month * 5,000 bu $375 or $0.075/bu Opportunity Costs (2.5/12) * $3.02/bu * 5% * 5,000 bu $157.29 or $0.0315/bu Total $532.29 or $0.1065/bu

Costs of Ownership Storage Costs Opportunity Costs 3.2 months * $0.03/bu/month * 10,000 bu $960.00 or $0.096/bu Opportunity Costs (3.2/12) * $3.02/bu * 5% * 10,000 bu $402.67 or $0.0403/bu Total $1,362.67 or $0.1363/bu

Costs of Ownership Storage Costs Opportunity Costs 4 months * $0.03/bu/month * 5,000 bu $600.00 or $0.12/bu Opportunity Costs (4/12) * $3.02/bu * 5% * 5,000 bu $251.67 or $0.0503/bu Total $851.67 or $0.1703/bu

Costs of Ownership Storage Costs Opportunity Costs 5 months * $0.03/bu/month * 5,000 bu $750 or $0.15/bu Opportunity Costs (5/12) * $3.02/bu * 5% * 5,000 bu $314.58 or $0.0629/bu Total $1,064.58 or $0.2129/bu Grand Total $3,811.21 or $0.1524/bu

Final Tally for Off-farm Corn Per Bushel Total Cash Price – Sale 1 $3.04 $15,200.00 Cash Price – Sale 2 $3.17 $31,700.00 Cash Price – Sale 3 $3.25 $16,250.00 Cash Price – Sale 4 $3.42 $17,100.00 $3.21 $80,250.00 Production Cost -$3.27 -$81,750.00 -$0.06 -$ 1,500.00 Costs of Ownership -$0.1524 -$ 3,811.21 Final Net Return -$0.2124 -$ 5,311.21

Final Tally for All of My Corn Per Bushel Total Cash Price $3.315 $165,750.00 Production Cost -$3.27 -$163,500.00 $0.045 $ 2,250.00 Costs of Ownership -$0.1327 -$ 6,634.13 -$0.0877 -$ 4,384.13 Futures/Options Return -$0.16 -$ 8,000.00 Final Net Return -$0.2477 -$ 12,384.13

Estimate 2018 Production Costs

Estimate 2018 Production Costs

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

Class web site: http://www2.econ.iastate.edu/faculty/hart/Classes/econ337/Spring2018/index.htm