1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Chad Hart
Associate Professor 1

2. 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

3. 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

4. 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%

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, or $0.0629/bu
Total $2, or $0.1129/bu

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

7. 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 $
Futures/Options Return
-$0.32
-$ 8,000.00
Final Net Return
-$0.2829
-$ 7,072.92

8. 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

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

10. 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
$ or $0.0315/bu
Total $ or $0.1065/bu

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

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

13. 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
$ or $0.0629/bu
Total $1, or $0.2129/bu
Grand Total $3, or $0.1524/bu

14. 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

15. 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

16. Estimate 2018 Production Costs

17. Estimate 2018 Production Costs

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

19. Class web site: