1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor
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. 11
Offset hedge and sold Apr. 11
So the corn was in storage for 5.3 months

4. Relevant Prices and Costs
Cash Prices: Nov. 1 $3.43
Apr. 11 $3.22
Basis at Sale: -$0.35
Prod. Costs: -$3.72
Futures Prices: Jan. 11 $3.57
Apr. 11 $3.57
Storage Costs: $0.01/month
Interest Rate: %

5. Costs of Ownership Storage Costs Opportunity Costs
5.3 months * $0.01/bu/month * 25,000 bu
$1,325 or $0.053/bu
Opportunity Costs
(5.3/12) * $3.43/bu * 7.5% * 25,000 bu
$2, or $0.1136/bu
Total $4, or $0.1666/bu

6. Futures/Options Return
Sold 5 May ’16 corn futures on Jan. $3.57
Offset by buying 5 May ’16 corn futures on Apr. $3.57
Paid broker $0.01/bu for the service
Per Bushel Return:
($ $3.57) - $0.01 = -$0.01
Return on Hedge: -$250.00

7. Final Tally for On-farm Corn
Per Bushel
Total
Cash Price
$3.22
$80,500.00
Production Cost
-$3.72
-$93,000.00
-$0.50
-$12,500.00
Costs of Ownership
-$0.1666
-$ 4,165.47
-$0.6666
-$16,665.47
Futures/Options Return
-$0.01 -$
Final Net Return
-$0.6766
-$16,915.47

8. 25,000 Bushels of Corn Stored at Coop
Timeline
Harvested Nov. 1
Sold some & bought put Jan. 11
Sold more Feb. 22
Sold the rest & offset put Apr. 11
Some of the corn was in storage for 2.3 months, some for 3.7 months, and the rest was in storage for 5.3 months

9. Relevant Prices and Costs
Cash Prices: Nov. 1 $3.43
Jan. 11 $3.19
Feb. 22 $3.39
Apr. 11 $3.22
Basis: Jan. 11 -$0.3275
Feb. 22 -$0.285
Apr. 11 -$0.35
Prod. Costs: -$3.72
Storage Costs: $0.03/month
Interest Rate: %

10. Relevant Prices and Costs
Put Option: May 2016 $3.50
Futures Prices: Jan. 11 $3.57
Apr. 11 $3.57
Put Premium: Jan. 11 $0.12
Apr. 11 $0.01

11. Costs of Ownership Storage Costs Opportunity Costs
2.3 months * $0.03/bu/month * 5,000 bu
$345 or $0.069/bu
Opportunity Costs
(2.3/12) * $3.43/bu * 7.5% * 5,000 bu
$ or $0.0493/bu
Total $ or $0.1183/bu

12. Costs of Ownership Storage Costs Opportunity Costs
3.7 months * $0.03/bu/month * 15,000 bu
$1, or $0.111/bu
Opportunity Costs
(3.7/12) * $3.43/bu * 7.5% * 15,000 bu
$1, or $0.0793/bu
Total $2, or $0.1903/bu

13. Costs of Ownership Storage Costs Opportunity Costs
5.3 months * $0.03/bu/month * 5,000 bu
$795 or $0.159/bu
Opportunity Costs
(5.3/12) * $3.43/bu * 7.5% * 5,000 bu
$ or $0.1136/bu
Total $1, or $0.2726/bu
Grand Total $4, or $0.1924/bu

14. Futures/Options Return
Bought 1 May ’16 corn put option w/ $3.50 strike price on Jan. $0.12
Offset by selling 1 May ’16 corn put option w/ $3.50 strike price on Apr. $0.01
Paid broker $0.01/bu for the service
Per Bushel Return:
($ $0.12) - $0.01 = -$0.12
Return on Option: -$600.00

15. Final Tally for Off-farm Corn
Per Bushel
Total
Cash Price – Sale 1
$3.19
$15,950.00
Cash Price – Sale 2
$3.39
$50,850.00
Cash Price – Sale 3
$3.22
$16,100.00
$3.316
$82,900.00
Production Cost
-$3.72
-$93,000.00
-$0.404
-$10,100.00
Costs of Ownership
-$0.1924
-$ 4,809.40
-$0.5964
-$14,909.40
Futures/Options Return
-$0.024 -$
Final Net Return
-$0.6204
-$15,509.40

16. Final Tally for All of My Corn
Per Bushel
Total
Cash Price
$3.268
$163,400.00
Production Cost
-$3.72
-$186,000.00
-$0.452
-$ 22,600.00
Costs of Ownership
-$0.1795
-$ 8,974.87
-$0.6315
-$ 31,574.87
Futures/Options Return
-$0.017 -$
Final Net Return
-$0.6485
-$ 32,424.87

17. Estimate 2016 Production Costs

18. Estimate 2016 Production Costs

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

20. Class web site: