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. 10,000 Bushels of Soybeans Stored at Home
Timeline
Harvested Nov. 1
Hedged with futures Jan. 20
Offset hedge and sold Mar. 4
So the beans were in storage for 4.15 months

4. Relevant Prices and Costs
Cash Prices: Nov. 1 $12.30
Mar. 4 $13.77
Basis at Sale: -$0.47
Prod. Costs: -$9.95
Futures Prices: Jan. 20 $12.95
Mar. 4 $14.24
Storage Costs: $0.01/month
Interest Rate: 7.5%

5. Costs of Ownership Storage Costs Opportunity Costs
4.15 months * $0.01/bu/month * 10,000 bu
$415 or $0.0415/bu
Opportunity Costs
(4.15/12) * $12.30/bu * 7.5% * 10,000 bu
$3, or $0.3190/bu
Total $3, or $0.3605/bu

6. Futures/Options Return
Sold May ’14 Futures on Jan. $12.95
Offset by buying May ’14 Futures on Mar. $14.24
Paid broker $0.01/bu for the service
Per Bushel Return:
($ $14.24) - $0.01 = -$1.30
Total Return on Hedge: -$13,000

7. Final Tally for Sale Per Bushel Total Cash Price $13.77 $137,700.00
Production Cost
-$ 9.95
-$ 99,500.00
$ 3.82
$ 38,200.00
Costs of Ownership -$
-$ 3,605.31 $
$ 34,594.69
Futures/Options Return
-$ 1.30
-$ 13,000.00
Final Net Return $
$ 21,594.69

8. 10,000 Bushels of Soybeans Stored at Coop
Timeline
Harvested Nov. 1
Sold Mar. 4
So the beans were in storage for 4.15 months

9. Relevant Prices and Costs
Cash Prices: Nov. 1 $12.30
Mar. 4 $13.77
Basis at Sale: -$0.47
Prod. Costs: -$9.95
Storage Costs: $0.03/month
Interest Rate: 7.5%

10. Costs of Ownership Storage Costs Opportunity Costs
4.15 months * $0.03/bu/month * 10,000 bu
$1,245 or $0.1245/bu
Opportunity Costs
(4.15/12) * $12.30/bu * 7.5% * 10,000 bu
$3, or $0.3190/bu
Total $4, or $0.4435/bu

11. Final Tally for Sale Per Bushel Total Cash Price $13.77 $137,700.00
Production Cost
-$ 9.95
-$ 99,500.00
$ 3.82
$ 38,200.00
Costs of Ownership -$
-$ 4,435.31
Final Net Return $
$ 33,764.69

12. Final Tally for All of My Soybeans
Per Bushel
Total
Cash Price
$13.77
$275,400.00
Production Cost
-$ 9.95
-$199,000.00
$ 3.82
$ 76,400.00
Costs of Ownership -$
-$ 8,040.62 $
$ 68,359.38
Futures/Options Return
-$ 0.65
-$ 13,000.00
Final Net Return $
$ 55,359.38

13. Now Moving the New Crop

14. Estimate 2014 Production Costs

15. Estimate 2014 Production Costs

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

17. Have a great weekend. See you Tuesday.
Class web site:
Have a great weekend. See you Tuesday.