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ECON 337: Agricultural Marketing

This report provides details of a marketing transaction for soybeans, including cash prices, basis, costs, futures/options returns, storage costs, and net returns. It also compares historical average returns.

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ECON 337: Agricultural Marketing

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  1. ECON 337: Agricultural Marketing Chad Hart Assistant Professor chart@iastate.edu 515-294-9911

  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. 10 Offset hedge and sold Apr. 12 So the beans were in storage for 5.4 months

  4. Relevant Prices and Costs Cash Prices: Nov. 1 $11.55 Apr. 12 $13.79 Basis at Sale: -$0.62 Prod. Costs: -$9.45 Futures Prices: Jan. 10 $12.41 Apr. 12 $14.41 Storage Costs: $0.01/month Interest Rate: 7.5%

  5. Costs of Ownership Storage Costs 5.4 months * $0.01/bu/month * 10,000 bu $540 or $0.054/bu Opportunity Costs (5.4/12) * $11.55/bu * 7.5% * 10,000 bu $3,900 or $0.39/bu Total $4,440 or $0.444/bu

  6. Futures/Options Return Sold May ’12 Futures on Jan. 10 @ $12.41 Offset by buying May ’12 Futures on Apr. 12 @ $14.41 Paid broker $0.01/bu for the service Per Bushel Return: ($12.41 - $14.41) - $0.01 = -$2.01 Total Return on Hedge: -$20,100

  7. Final Tally

  8. Historical Comparison

  9. Historical Comparison Average $0.40/bushel For 2011, Captured $1.89/bushel

  10. Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2012/

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