1. Animal Science Industry Animal Science Industry

2. Common Core/Next Generation Science Standards Addressed CCSS.ELA-Literacy.RH.9-10.4 - Determine the meaning of words and phrases as they are used in a text, including vocabulary describing political, social, or economic aspects of history/social science. CCSS.ELA-Literacy.RH.9-10.4 - Determine the meaning of words and phrases as they are used in a text, including vocabulary describing political, social, or economic aspects of history/social science. WHST.9-12.9 - Draw evidence from informational texts to support analysis, reflection, and research. (HS-PS1-3 WHST.9-12.9 - Draw evidence from informational texts to support analysis, reflection, and research. (HS-PS1-3 HSA-SSE.A.1 - Interpret expressions that represent a quantity in terms of its context. (HS-PS2-1),(HS-PS2-4) HSA-SSE.A.1 - Interpret expressions that represent a quantity in terms of its context. (HS-PS2-1),(HS-PS2-4)

3. Agriculture, Food and Natural Resource Standards Addressed! ABS.02.02. Assemble, interpret and analyze financial information and reports to monitor AFNR business performance and support decision-making (e.g., income statements, balance sheets, cash- flow analysis, inventory reports, break-even analysis, return on investment, taxes, etc.). ABS.02.02. Assemble, interpret and analyze financial information and reports to monitor AFNR business performance and support decision-making (e.g., income statements, balance sheets, cash- flow analysis, inventory reports, break-even analysis, return on investment, taxes, etc.). ABS.02.02.01.b. Prepare and interpret financial reports to describe the performance of AFNR businesses (e.g., efficiency, profitability, net worth, financial ratios, working capital ratio, leverage, etc.). ABS.02.02.01.b. Prepare and interpret financial reports to describe the performance of AFNR businesses (e.g., efficiency, profitability, net worth, financial ratios, working capital ratio, leverage, etc.).

4. Bell Work What is a future ? What is a future ? What is a market ? What is a market ? Name 3 places you can check the futures market Name 3 places you can check the futures market

5. Understanding Futures Contracts and Governmental Programs

6. Interest Approach Tell students that you will give them one point for each extra credit assignment they turn in today. Tell students that you will give them one point for each extra credit assignment they turn in today. Next, tell them you might give them three points for each extra credit assignment they turn in next week, but they have to do them today. Ask the students which they would prefer, one point today or maybe three points next week. Is it worth hurrying to get them done if you only get one point instead of three? Next, tell them you might give them three points for each extra credit assignment they turn in next week, but they have to do them today. Ask the students which they would prefer, one point today or maybe three points next week. Is it worth hurrying to get them done if you only get one point instead of three?

7. Student Learning Objectives Describe the futures market Describe the futures market Describe Hedging Describe Hedging Explain margin calls and option contracts Explain margin calls and option contracts

8. Terms Basis Futures price HedgingMarginPut

9. What is the futures market? It is the complex system of selling commodities using forward pricing It is the complex system of selling commodities using forward pricing Uses futures pricing in trading commodities Uses futures pricing in trading commodities

10. Future price is the quoted price for a commodity to be delivered in a pre-determined month. Future price is the quoted price for a commodity to be delivered in a pre-determined month.

11. This does not guarantee the actual price of the commodity, it is only an estimate. This does not guarantee the actual price of the commodity, it is only an estimate. Actual price will be based on a number of factors present in the future. Actual price will be based on a number of factors present in the future.

12. What is hedging? Hedging is the use of futures market to set a price for future commodities. Hedging is the use of futures market to set a price for future commodities. In order to set the selling price, producers must sell a futures contract ensuring the delivery of their commodity at a specific time. In order to set the selling price, producers must sell a futures contract ensuring the delivery of their commodity at a specific time.

13. True hedge involves the producer selling their commodity on the cash market and buying back the futures contract at the same time. True hedge involves the producer selling their commodity on the cash market and buying back the futures contract at the same time. Basis is the difference in price between these two transactions. Basis is the difference in price between these two transactions.

14. Difference is commonly the cost of transportation. Difference is commonly the cost of transportation. Ex. Transportation costs are high for livestock, therefore the basis for livestock is negative. Ex. Transportation costs are high for livestock, therefore the basis for livestock is negative.

15. Basis risk occurs when the basis is higher than the anticipated basis. Basis risk occurs when the basis is higher than the anticipated basis. To prevent loss, the producer can follow through with the original futures contract. To prevent loss, the producer can follow through with the original futures contract. Producer must be sure that the product meets the contract specifications. Producer must be sure that the product meets the contract specifications.

16. What are margin calls and option contracts? A margin call occurs when the contract holder has to put up a margin. A margin call occurs when the contract holder has to put up a margin. Margin is a minimal amount of money paid towards a futures contract. Margin is a minimal amount of money paid towards a futures contract.

17. Margin calls can be troublesome because they require a large sum of money on short notice. Margin calls can be troublesome because they require a large sum of money on short notice.

18. Before placing a hedge it is important to know the cost of producing the product and have extra money available to meet any unexpected margin calls. Before placing a hedge it is important to know the cost of producing the product and have extra money available to meet any unexpected margin calls.

19. There are options available to help eliminate margin calls. There are options available to help eliminate margin calls. One option is called a put One option is called a put Put is a contract that allows the producer to back out of the trade. Put is a contract that allows the producer to back out of the trade. Similar to an insurance policy for the seller, they are guaranteed the price they want to sell at. Similar to an insurance policy for the seller, they are guaranteed the price they want to sell at.

20. The other option is a call option The other option is a call option A call option gives the buyer the right to force the seller to sell on demand. A call option gives the buyer the right to force the seller to sell on demand. This is like an insurance policy for the buyer, they are guaranteed the price they want to buy at. This is like an insurance policy for the buyer, they are guaranteed the price they want to buy at.

21. Review What is the futures market? What is the futures market? What is hedging? What is hedging? What are margin calls and option contracts? What are margin calls and option contracts?

22. The End!