Farmer Production II: Assume that your family farm is located in the Thumb of Michigan which is one of the most diverse growing regions of the country where you might grow five different crops such as wheat, corn, soybeans, dry beans and sugar beets. Your parents are paying for you to go to Michigan State and earn a degree in Ag Business Management so that you can come back and eventually take over the farm. The sugar beets and dry beans are grown under contract every year while the soybeans, wheat and corn are sold in the cash market. Planning has become more difficult each year given the volatility of corn, wheat, and soybean prices and this year the operation was unhedged. It is November and your father is already thinking about the new crop, and he has asked you to develop a strategic risk management program to reduce the uncertainty for corn and soybeans next year. Here are the specific pieces of information that he is giving you to structure the plan: - 600 acres will be planted in corn this year, with a five-year average yield of 166.7 bushels per acre (bpa). (note, assume that acres harvest will be the same as acres planted) - 600 acres will be planted in soybeans this year, with a five-year average yield of 50 bushels per acre (bpa). (note, assume that acres harvest will be the same as acres planted) Since your father has never hedged before he would like to scale into the process: - He wants to hedge 40% of the corn production, - and hedge 33.3% of the soybeans production Current corn market information from the CME/CBOT, November 17, 2023 Price Unit: Cents and quarter-cents/bu. Contract Size =5,000 bushels Current soybean market information from the CME/CBOT, November 17, 2023 Price Unit: Cents and quarter-cents/bu. Contract Size =5,000 bushe/s Production and Hedging Considerations 1. How many total bushels of corn are expected to be produced? (2 pts.) (show work) 2. How many total bushels of soybeans are expected to be produced? (2 pts.) (show work) 3. How many futures contracts will you need for corn given 40% coverage (round to the nearest whole number)? (4 pts.) (show work) 4. How many futures contracts will you need for soybeans given 33.3% coverage (round to the nearest whole number)? (4 pts.) (show work) Farmer Production II: Assume that your family farm is located in the Thumb of Michigan which is one of the most diverse growing regions of the country where you might grow five different crops such as wheat, corn, soybeans, dry beans and sugar beets. Your parents are paying for you to go to Michigan State and earn a degree in Ag Business Management so that you can come back and eventually take over the farm. The sugar beets and dry beans are grown under contract every year while the soybeans, wheat and corn are sold in the cash market. Planning has become more difficult each year given the volatility of corn, wheat, and soybean prices and this year the operation was unhedged. It is November and your father is already thinking about the new crop, and he has asked you to develop a strategic risk management program to reduce the uncertainty for corn and soybeans next year. Here are the specific pieces of information that he is giving you to structure the plan: - 600 acres will be planted in corn this year, with a five-year average yield of 166.7 bushels per acre (bpa). (note, assume that acres harvest will be the same as acres planted) - 600 acres will be planted in soybeans this year, with a five-year average yield of 50 bushels per acre (bpa). (note, assume that acres harvest will be the same as acres planted) Since your father has never hedged before he would like to scale into the process: - He wants to hedge 40% of the corn production, - and hedge 33.3% of the soybeans production Current corn market information from the CME/CBOT, November 17, 2023 Price Unit: Cents and quarter-cents/bu. Contract Size =5,000 bushels Current soybean market information from the CME/CBOT, November 17, 2023 Price Unit: Cents and quarter-cents/bu. Contract Size =5,000 bushe/s Production and Hedging Considerations 1. How many total bushels of corn are expected to be produced? (2 pts.) (show work) 2. How many total bushels of soybeans are expected to be produced? (2 pts.) (show work) 3. How many futures contracts will you need for corn given 40% coverage (round to the nearest whole number)? (4 pts.) (show work) 4. How many futures contracts will you need for soybeans given 33.3% coverage (round to the nearest whole number)? (4 pts.) (show work)