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Ethanol

What’s Driving Global Commodity Prices? Chris Hurt & Corinne Alexander hurtc@purdue.edu cealexan@purdue.edu Purdue University March 31, 2011. Rapid World Economic Growth. Weak Dollar. Ethanol. What Can Ethanol Plants Pay for Corn?. Corn Price ($/ bushel). Crude Oil Price ($/barrel).

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Ethanol

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  1. What’s Driving Global Commodity Prices?Chris Hurt & Corinne Alexander hurtc@purdue.edu cealexan@purdue.eduPurdue UniversityMarch 31, 2011 Department of Agricultural Economics Purdue University

  2. Rapid World Economic Growth Weak Dollar Ethanol Department of Agricultural Economics Purdue University

  3. Department of Agricultural Economics Purdue University

  4. What Can Ethanol Plants Pay for Corn? Corn Price ($/ bushel) Crude Oil Price ($/barrel) Source: http://www.farmdoc.illinois.edu/marketing/mobr/mobr_11-01/mobr_11-01.html Department of Agricultural Economics Purdue University

  5. Department of Agricultural Economics Purdue University

  6. Stocks Situation Department of Agricultural Economics Purdue University

  7. 2011 Corn + 5% Beans - 1% Wheat + 8%

  8. 2011 What To Plant??? Department of Agricultural Economics Purdue University

  9. Estimated Variable Cost Per Acre: Average Quality Indiana Land (161 bu corn, 49 beans, 70 wheat) Department of Agricultural Economics Purdue University

  10. Department of Agricultural Economics Purdue University

  11. Crop Insurance Prices Protected Revenue calculation assumes average quality land in Indiana, and Coverage level of 85% Department of Agricultural Economics Purdue University

  12. $7.10

  13. Department of Agricultural Economics Purdue University

  14. $15.50

  15. Department of Agricultural Economics Purdue University

  16. New Crop Pricing Alternatives • Pricing strategies that tend to work well in the Pre-harvest period include: • Forward cash contracting • Selling futures to hedge • Buying put options • Selling cash on a forward contract and also buying new crop call options (this is called a synthetic put), and • Fence which combines buying a put and selling a call

  17. Recommended Strategies • 1. • 2. • 3. Department of Agricultural Economics Purdue University

  18. Now You Know Which Direction To Go In 2011/2012!

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