1. Agricultural Marketing
ECON 337:
Agricultural Marketing
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. 10
Offset hedge and sold Mar. 31
So the corn was in storage for 5 months

4. Relevant Prices and Costs
Cash Prices: Nov. 1 $3.05
Mar. 31 $3.24
Basis at Sale: -$0.42
Prod. Costs: -$3.23
Futures Prices: Jan. 10 $3.65
Mar. 31 $3.64
Storage Costs: $0.01/month
Interest Rate: 5%

5. Costs of Ownership Storage Costs Opportunity Costs
5 months * $0.01/bu/month * 25,000 bu
$1,250 or $0.05/bu
Opportunity Costs
(5/12) * $3.05/bu * 5% * 25,000 bu
$1, or $0.0635/bu
Total $2, or $0.1135/bu

6. Futures/Options Return
Sold 5 May ’17 corn futures on Jan. $3.65
Offset by buying 5 May ’17 corn futures on Mar. $3.64
Paid broker $0.01/bu for the service
Per Bushel Return:
($ $3.64) - $0.01 = $0.00
Return on Hedge: $0.00

7. Final Tally for On-farm Corn
Per Bushel
Total
Cash Price
$3.24
$81,000.00
Production Cost
-$3.23
-$80,750.00
$0.01 $
Costs of Ownership
-$0.1135
-$ 2,838.54
-$0.1035
-$ 2,588.54
Futures/Options Return
$0.00 $
Final Net Return

8. 25,000 Bushels of Corn Stored at Coop
Timeline
Harvested Nov. 1
Sold some & bought put Jan. 10
Sold more Feb. 22
Sold the rest & offset put Mar. 31
Some of the corn was in storage for 2.3 months, some for 3.7 months, and the rest was in storage for 5 months

9. Relevant Prices and Costs
Cash Prices: Nov. 1 $3.05
Jan. 10 $3.16
Feb. 22 $3.23
Mar. 31 $3.24
Basis: Jan. 10 -$0.49
Feb. 22 -$0.55
Mar. 31 -$0.42
Prod. Costs: -$3.23
Storage Costs: $0.03/month
Interest Rate: 5%

10. Relevant Prices and Costs
Put Option: May 2017 $3.50
Futures Prices: Jan. 10 $3.65
Mar. 31 $3.64
Put Premium: Jan. 10 $0.08
Mar. 31 $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) * $3.05/bu * 5% * 5,000 bu
$ or $0.0292/bu
Total $ or $0.0982/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) * $3.05/bu * 5% * 15,000 bu
$ or $0.0470/bu
Total $2, or $0.1580/bu

13. Costs of Ownership Storage Costs Opportunity Costs
5 months * $0.03/bu/month * 5,000 bu
$750 or $0.15/bu
Opportunity Costs
(5/12) * $3.05/bu * 5% * 5,000 bu
$ or $0.0635/bu
Total $1, or $0.2135/bu
Grand Total $3, or $0.1572/bu

14. Futures/Options Return
Bought 1 May ’17 corn put option w/ $3.50 strike price on Jan. $0.08
Offset by selling 1 May ’17 corn put option w/ $3.50 strike price on Mar. $0.01
Paid broker $0.01/bu for the service
Per Bushel Return:
($ $0.08) - $0.01 = -$0.08
Return on Option: -$400.00

15. Final Tally for Off-farm Corn
Per Bushel
Total
Cash Price – Sale 1
$3.16
$15,800.00
Cash Price – Sale 2
$3.23
$48,450.00
Cash Price – Sale 3
$3.24
$16,200.00
$3.218
$80,450.00
Production Cost
-$3.23
-$80,750.00
-$0.012 -$
Costs of Ownership
-$0.1572
-$ 3,929.17
-$0.1692
-$ 4,229.17
Futures/Options Return
-$0.016 -$
Final Net Return
-$0.1852
-$ 4,629.17

16. Final Tally for All of My Corn
Per Bushel
Total
Cash Price
$3.229
$161,450.00
Production Cost
-$3.23
-$161,500.00
-$0.001 -$
Costs of Ownership
-$0.1354
-$ 6,767.71
-$0.1364
-$ 6,817.71
Futures/Options Return
-$0.008 -$
Final Net Return
-$0.1444
-$ 7,217.71

17. Estimate 2017 Production Costs

18. Estimate 2017 Production Costs

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

20. Class web site: