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Agricultural Marketing Report: Understanding Bean Storage and Sales

This report details a transaction for the marketing of soybeans, covering cash prices, basis, costs, futures/options returns, storage expenses, and opportunity costs. It provides insights into decision-making processes related to bean storage and sales. Relevant for agricultural economics studies.

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Agricultural Marketing Report: Understanding Bean Storage and Sales

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  1. ECON 337: Agricultural Marketing Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356 Chad Hart Associate 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. 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 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 $3,190.31 or $0.3190/bu Total $3,605.31 or $0.3605/bu

  6. Futures/Options Return Sold May ’14 Futures on Jan. 20 @ $12.95 Offset by buying May ’14 Futures on Mar. 4 @ $14.24 Paid broker $0.01/bu for the service Per Bushel Return: ($12.95 - $14.24) - $0.01 = -$1.30 Total Return on Hedge: -$13,000

  7. Final Tally for Sale

  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 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 $3,190.31 or $0.3190/bu Total $4,435.31 or $0.4435/bu

  11. Final Tally for Sale

  12. Final Tally for All of My Soybeans

  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. Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2014/ Have a great weekend. See you Tuesday.

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