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

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  HarvestedNov. 1  Hedged with futuresJan. 11  Hedged moreFeb. 17  Offset hedge and soldApr. 18  So the corn was in storage for 5.5 months

4. Relevant Prices and Costs  Cash Prices:Nov. 1 $3.37 Apr. 18 $3.56  Basis at Sale:-$0.24  Prod. Costs:-$3.95  Futures Prices:Jan. 11 $4.07 Feb. 17 $3.97 Apr. 18 $3.80  Storage Costs: $0.01/month  Interest Rate: 7.5%

5. Costs of Ownership  Storage Costs  5.5 months * $0.01/bu/month * 25,000 bu  $1,375 or $0.055/bu  Opportunity Costs  (5.5/12) * $3.37/bu * 7.5% * 25,000 bu  $2,896.09 or $0.1158/bu  Total$4,271.09 or $0.1708/bu

6. Futures/Options Return  Sold May ’15 Futures on Jan. 11 @ $4.07  Offset by buying May ’15 Futures on Apr. 18 @ $3.80  Paid broker $0.01/bu for the service  Per Bushel Return: ($4.07 - $3.80) - $0.01 = $0.26  Return on Hedge: $1,300

7. Futures/Options Return  Sold May ’15 Futures on Feb. 17 @ $3.97  Offset by buying May ’15 Futures on Apr. 18 @ $3.80  Paid broker $0.01/bu for the service  Per Bushel Return: ($3.97 - $3.80) - $0.01 = $0.16  Return on Hedge: $800  Total Return on Hedges: $2,100

8. Final Tally for On-farm Corn Per BushelTotal Cash Price $3.56 $89,000.00 Production Cost -$3.95-$98,750.00 -$0.39-$ 9,750.00 Costs of Ownership -$0.1708-$ 4,271.09 -$0.5608-$14,021.09 Futures/Options Return $0.0840 $ 2,100.00 Final Net Return -$0.4768-$11,921.09

9. 25,000 Bushels of Corn Stored at Coop  Timeline  HarvestedNov. 1  Sold SomeJan. 11  Sold the RestApr. 18  Some of the corn was in storage for 2.3 months  The rest was in storage for 5.5 months

10. Relevant Prices and Costs  Cash Prices:Nov. 1 $3.37 Jan. 11 $3.63 Apr. 18 $3.56  Basis at Sale 1:-$0.37  Basis at Sale 2:-$0.24  Prod. Costs:-$3.95  Storage Costs: $0.03/month  Interest Rate: 7.5%

11. Costs of Ownership  Storage Costs  2.3 months * $0.03/bu/month * 5,000 bu  $345 or $0.069/bu  Opportunity Costs  (2.3/12) * $3.37/bu * 7.5% * 5,000 bu  $242.22 or $0.0484/bu  Total$587.22 or $0.1174/bu

12. Costs of Ownership  Storage Costs  5.5 months * $0.03/bu/month * 20,000 bu  $3,300 or $0.165/bu  Opportunity Costs  (5.5/12) * $3.37/bu * 7.5% * 20,000 bu  $2,316.88 or $0.1158/bu  Total$5,616.88 or $0.2808/bu  Grand Total$6,204.10 or $0.2482/bu

13. Final Tally for Off-farm Corn Per BushelTotal Cash Price – Sale 1 $3.63 $18,150.00 Cash Price – Sale 2 $3.56 $71,200.00 $3.574 $89,350.00 Production Cost -$3.95-$98,750.00 -$0.376-$ 9,400.00 Costs of Ownership -$0.2482-$ 6,204.10 Final Net Return -$0.6242-$15,604.10

14. Final Tally for All of My Corn Per BushelTotal Cash Price $3.567 $178,350.00 Production Cost -$3.95-$197,500.00 -$0.383-$ 19,150.00 Costs of Ownership -$0.2095-$ 10,475.19 -$0.5925-$ 29,625.19 Futures/Options Return $0.042 $ 2,100.00 Final Net Return -$0.5505-$ 27,525.19

15. Estimate 2015 Production Costs

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

18. Class web site: http://www2.econ.iastate.edu/faculty/hart/ Classes/econ337/Spring2015/index.htm See you in lab.