1. Joe Elevator has two bins of grain. Lot 1 has TW = 53.6, Moisture = 16.6%, FM = 3.4%, Lot 2 has TW = 55, Moisture = 14.6%, and FM = 2.6%. The target blend is 5,000 bushels, Moisture = 15%, TW = 54, and FM = 3.0. The discount schedule for the grain in Lot 1 and Lot 2 was the following: Moisture and shrink started at 15%. The drying charge was 2.75 cents per point of moisture. The shrink was 5% per point of moisture rounded to the tenth of %. TW discount is 2.5 cents per lb below 54. FM discount is 2.75 cents per % above 3%. The discount schedule on the blended grain is the following: Moisture and shrink started at 15%. The drying charge was 3 cents per point of moisture. The shrink was 2% per point of moisture rounded to the tenth of %. TW discount is 3 cents per lb below 54. FM discount is 2.5 cents per % above 3%. The 5,000 bushel lot was sold for 5.60 per bushel. The moisture, TW, and FM discounts for Lot 1, Lot 2, and the blended lot should be calculated off net bushels (dry bushels).

1. Determine how many bushels of Lot 1 and Lot 2 need to be blended together to get 5,000 bushels of grain that meets the 15% moisture target. 10 points

2. What would the Moisture, TW, and FM be on the blended lot? 5 points

3. What would the total blend revenue be on the 5,000 bushel lot? 15 points

2. Joe Merchant bought corn and placed it into storage in October. He plans to delivery it in January. The October buy basis = -.15Z21 and the January sell basis = -.10H2 Storage costs are 1 cent per month and CZ21 is currently 5.80. The alternative rate of return is 3.5%. At the time Joe rolls his hedge, CZ21 was 5.10 and CH22 was 5.15.

1. What is the gross margin?

2. What is the net margin?

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