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ECON 337: Agricultural Marketing

ECON 337: Agricultural Marketing. Lee Schulz Assistant Professor lschulz@iastate.edu 515-294-3356. Chad Hart Associate Professor chart@iastate.edu 515-294-9911. Example Transaction for Marketing Report. Details Cash Price Basis Gross Revenue Net Return after Prod. Costs

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ECON 337: Agricultural Marketing

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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. 15 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 $15.00 Apr. 12 $14.10 Basis at Sale: -$0.03 Prod. Costs: -$9.95 Futures Prices: Jan. 15 $13.9975 Apr. 12 $14.13 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) * $15.00/bu * 7.5% * 10,000 bu $5,062.50 or $0.50625/bu Total $5,602.50 or $0.56025/bu

  6. Futures/Options Return Sold May ’13 Futures on Jan. 14 @ $13.9975 Offset by buying May ’13 Futures on Apr. 12 @ $14.13 Paid broker $0.01/bu for the service Per Bushel Return: ($13.9975 - $14.13) - $0.01 = -$0.1425 Total Return on Hedge: -$1,425

  7. Final Tally

  8. Historical Comparison

  9. Historical Comparison Average $0.41/bushel

  10. Class web site: http://www.econ.iastate.edu/~chart/Classes/econ337/Spring2013/ Have a great VEISHEA weekend!

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