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 bushels Corn Futures and Cash Markets 5. You hedge corn at the DEC24 contract settle price for the day. What is the settle price in dollars? (2 pts.) 6. When December 11t rolls around, you offset your futures position for corn. The December futures contract price is now $4.7300/bu. Also on December 1tt, you sell the corn that you have harvested on the cash market at the same price of $4.7300/bu. 1. What is your per bushel profit or loss in the futures market? (4 pts.) 2. What is your total profit/loss in the futures market? (4 pts.) 3. Accounting for profit/loss in the futures market, what is the effective price per bushel for corn, also called the net price per bushel, you receive for your corn. ( 8 pts.) Show the math. Soybean Futures and Cash Markets 7. You hedge soybeans at the NOV24 contract settle price for the day. What is the settle price in dollars? (2 pts.) When November 1st rolls around, you offset your futures position for soybeans. The November futures contract price is now $9.2550/bu. Also on November 1th, you sell the soybeans that you have harvested on the cash market at the same price of $9.255/bu. a. What is your per bushel profit or loss in the futures market? (4 pts.) b. What is your total profit/loss in the futures market? (4 pts.) c. Accounting for profit/loss in the futures market, what is the effective price per bushel, also called the net price per bushel, you receive for your soybeans. ( 8 pts.) Show the math. 4. Based on your hedging experience do you think your father will hire you for next year? (4 pts.) explain, yes or no is not adequate. 5. What was the ultimate goal in putting the hedge program in place? (4 pts.) explain