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ECON 337: Agricultural Marketing

ECON 337: Agricultural Marketing. Lee Schulz Associate Professor lschulz@iastate.edu 515-294-3356. Chad Hart Associate Professor chart@iastate.edu 515-294-9911. Example Transaction for Marketing Report (from last year). Details Cash Price Basis Gross Revenue

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ECON 337: Agricultural Marketing

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

  2. Example Transaction for Marketing Report (from last year) 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. 16 Offset hedge and sold Mar. 29 So the corn was in storage for 5 months

  4. Relevant Prices and Costs Cash Prices: Nov. 1 $3.02 Mar. 29 $3.42 Basis at Sale: -$0.46 Prod. Costs: -$3.27 Futures Prices: Jan. 10 $3.57 Mar. 29 $3.88 Storage Costs: $0.01/month Interest Rate: 5%

  5. Costs of Ownership Storage Costs 5 months * $0.01/bu/month * 25,000 bu $1,250 or $0.05/bu Opportunity Costs (5/12) * $3.02/bu * 5% * 25,000 bu $1,572.92 or $0.0629/bu Total $2,822.92 or $0.1129/bu

  6. Futures/Options Return Sold 5 May ’17 corn futures on Jan. 16 @ $3.57 Offset by buying 5 May ’17 corn futures on Mar. 29 @ $3.88 Paid broker $0.01/bu for the service Per Bushel Return: ($3.57 - $3.88) - $0.01 = -$0.32 Return on Hedge: -$8,000.00

  7. Final Tally for On-farm Corn

  8. 25,000 Bushels of Corn Stored at Coop Timeline Harvested Nov. 1 Sold some Jan. 16 Sold more Feb. 5 Sold on forward contract Feb. 20 Delivered on forward contract Mar. 1 Sold the rest Mar. 29 Some of the corn was stored for 2.5 months, some for 3.2 months, some for 4 months and the rest was in for 5 months

  9. Relevant Prices and Costs Price Basis Relevent Prices: Nov. 1 $3.02 Jan. 16 $3.04 -$0.44 Feb. 5 $3.17 -$0.42 Feb. 20 $3.25 -$0.40 Mar. 29 $3.42 -$0.46 Prod. Costs: -$3.27 Storage Costs: $0.03/month Interest Rate: 5%

  10. Costs of Ownership Storage Costs 2.5 months * $0.03/bu/month * 5,000 bu $375 or $0.075/bu Opportunity Costs (2.5/12) * $3.02/bu * 5% * 5,000 bu $157.29 or $0.0315/bu Total $532.29 or $0.1065/bu

  11. Costs of Ownership Storage Costs 3.2 months * $0.03/bu/month * 10,000 bu $960.00 or $0.096/bu Opportunity Costs (3.2/12) * $3.02/bu * 5% * 10,000 bu $402.67 or $0.0403/bu Total $1,362.67 or $0.1363/bu

  12. Costs of Ownership Storage Costs 4 months * $0.03/bu/month * 5,000 bu $600.00 or $0.12/bu Opportunity Costs (4/12) * $3.02/bu * 5% * 5,000 bu $251.67 or $0.0503/bu Total $851.67 or $0.1703/bu

  13. Costs of Ownership Storage Costs 5 months * $0.03/bu/month * 5,000 bu $750 or $0.15/bu Opportunity Costs (5/12) * $3.02/bu * 5% * 5,000 bu $314.58 or $0.0629/bu Total $1,064.58 or $0.2129/bu Grand Total $3,811.21 or $0.1524/bu

  14. Final Tally for Off-farm Corn

  15. Final Tally for All of My Corn

  16. Estimate 2018 Production Costs

  17. Estimate 2018 Production Costs

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

  19. Class web site: http://www2.econ.iastate.edu/faculty/hart/Classes/econ337/Spring2019/

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