ECON 337: Agricultural Marketing Chad Hart Associate Professor Lee Schulz Assistant Professor

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

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%

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, or $0.1158/bu  Total$4, or $0.1708/bu

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

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

Final Tally for On-farm Corn Per BushelTotal Cash Price $3.56 $89, Production Cost -$3.95-$98, $0.39-$ 9, Costs of Ownership -$ $ 4, $ $14, Futures/Options Return $ $ 2, Final Net Return -$ $11,921.09

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

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%

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  $ or $0.0484/bu  Total$ or $0.1174/bu

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, or $0.1158/bu  Total$5, or $0.2808/bu  Grand Total$6, or $0.2482/bu

Final Tally for Off-farm Corn Per BushelTotal Cash Price – Sale 1 $3.63 $18, Cash Price – Sale 2 $3.56 $71, $3.574 $89, Production Cost -$3.95-$98, $0.376-$ 9, Costs of Ownership -$ $ 6, Final Net Return -$ $15,604.10

Final Tally for All of My Corn Per BushelTotal Cash Price $3.567 $178, Production Cost -$3.95-$197, $0.383-$ 19, Costs of Ownership -$ $ 10, $ $ 29, Futures/Options Return $0.042 $ 2, Final Net Return -$ $ 27,525.19

Estimate 2015 Production Costs

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

Class web site: Classes/econ337/Spring2015/index.htm See you in lab.