1998 Missouri FFA
Farm Management Contest
Multiple Choice Section
The Farm Management Contest is designed to test student
understanding of the application of economic principles in farm
management. Each question is worth three (3) points.
Choose the best answer and mark the appropriate box on the score
sheet provided. There is only one correct answer to each
question.
1. Corn has an expected yield of 125 bushels per acre and a
production cost of $180.00 per acre. Expected market prices
are $2.50 per bushel for corn and $6.50 per bushel for
soybeans. Soybeans can be raised at a production cost of
$110 per acre. At what breakeven yield per acre would
soybeans generate the same net return per acre as corn?
A. 36.4 bushels
B. 37.3 bushels
C. 40.2 bushels
D. 48.1 bushels
E. None of the above
2. If high oil corn has the same production cost per acre as
regular corn but can be sold for 25› per bushel more, what
yield of high oil corn is needed to equal 125 bushels of
regular corn at $2.40 per bushel?
A. 109.1 bushels
B. 113.2 bushels
C. 117.5 bushels
D. 120.7 bushels
E. None of the above
3. For tax year 1997, the social security wage base was
A. $50,000
B. $61,200
C. $62,700
D. $65,400
E. None of the above
4. A farmer purchases 600-pound feeder steers for 90› per pound
and plans to sell the steers at 800 pounds. The farmer
estimates the total cost of gain to be 50› per pound. The
nearest breakeven price when the steers are sold at 800
pounds is
A. 58.13›/pound
B. 64.75›/pound
C. 73.75›/pound
D. 80.00›/pound
E. None of the above
5. How many total acres are included in the "S 1/2 of the NE 1/4
and E 1/2 of the NW 1/4 of Section 15, Twp. 10N, R4W of the
5th Principle Meridian"?
A. 80 acres
B. 120 acres
C. 160 acres
D. 240 acres
E. None of the above
6. How much perimeter fence would be required to completely
enclose the parcel of land described in question 5?
A. 1.5 miles
B. 2.0 miles
C. 2.5 miles
D. 3.0 mile
E. None of the above
7. How many acres are in a section of land?
A. 40 acres
B. 160 acres
C. 640 acres
D. 1,000 acres
E. None of the above
8. A township is six miles square and includes
A. 6 sections.
B. 36 sections.
C. 40 sections.
D. 160 sections.
E. None of the above
9. If a farmer purchased land for $160,000, has a loan of
$100,000 remaining on the land, and the market value of the
land is $200,000, the book value of the land on the balance
sheet will be
A. $40,000.
B. $60,000.
C. $100,000.
D. $160,000 less any accumulated depreciation.
E. None of the above
10. The present value formula for estimating land prices (PV =
annual net returns ö discount rate) assumes
A. future prices and yields can be estimated accurately.
B. the discount rate is appropriate.
C. income will continue to infinity.
D. net income will not trend up or down.
E. All of the above
11. A soybean producer decides to store his soybeans in the local
elevator for six months. The price at harvest is $6.00 per
bushel and the elevator charges 2› per bushel per month for
storage plus a 5› per bushel handling charge. He has 5,000
bushels to sell and must borrow $30,000 at 9% annual interest
while he stores the soybeans. What price must he receive for
his soybeans to break even and cover his storage and
opportunity costs?
A. $6.17
B. $6.34
C. $6.44
D. $6.71
E. None of the above
12. A farmer is purchasing a new baler at a cost of $26,000. His
dealer will finance the baler under the following terms: 20%
down payment with the balance repaid in equal payments over
the next six years at 7% APR. The farmer expects the baler
to last for 8 years and have a salvage value of $6,000. How
much interest will the farmer pay the first year of the loan?
A. $1,120
B. $1,400
C. $1,456
D. $1,820
E. None of the above
13. A decrease in the value of the U.S. dollar relative to the
currency of other countries should result in
A. more costly imports.
B. less costly imports.
C. decreased exports.
D. no effect on imports or exports.
E. None of the above
14. If the discount rate is 9%, what is the present value of a
dollar to be received by a producer two years from now?
A. $0.842
B. $0.857
C. $0.917
D. $1.188
E. None of the above
15. Farmer Jones has $10,000 in equipment he uses exclusively for
corn. He assumes that this equipment will last 5 years and
have a salvage value of $0. He plans to plant 50 acres of
corn each year. Assuming an interest rate of 8%, what will
be his average fixed costs per year for the next 5 years
(depreciation and interest) for this machinery per acre of
corn?
A. $20
B. $24
C. $29
D. $48
E. None of the above
16. In 1997, Pat Parker had net farm income of $25,000. Pat had
total business assets of $850,000 and total liabilities of
$350,000. Pat paid $30,000 in interest. Rate of return on
equity for 1997 would be
A. 2.9%
B. 5.0%
C. 6.5%
D. 11.0%
E. None of the above
17. The best measure of a firm's ability to make a short-term
loan payment is
A. debt/asset ratio.
B. solvency ratio.
C. current ratio.
D. leverage ratio.
E. net capital ratio.
18. A constant payment loan with payments consisting of principal
and interest is called
A. an amortized loan.
B. a complementary loan.
C. a discounted loan.
D. a fixed rate loan.
E. a capital loan.
19. The "rule of 72" says to divide 72 by the annual interest
rate to estimate the number of years needed for an initial
investment earning that rate to double. How long would it
take for $1 earning 6% a year to grow to $4?
A. 12 years
B. 24 years
C. 36 years
D. 48 years
E. None of the above
20. A charge for capital used in a farmer's cattle herd is
usually included in an enterprise budget regardless of the
farmer's equity position with respect to the herd (it does
not depend on whether he borrowed money to buy the cows or
not). This illustrates the principle of
A. marginal cost.
B. fixed cost.
C. opportunity cost.
D. variable cost.
E. alternative cost.
21. Net worth is a measure of
A. managerial ability.
B. financial position.
C. profitability.
D. liquidity.
E. All of the above
22. How many pounds of 48% protein soybean meal must be mixed
with 7% protein corn to make a ton of 16% protein feed?
A. 316 pounds
B. 400 pounds
C. 439 pounds
D. 487 pounds
E. None of the above
23. A feedlot operator buys feeder steers, finishes them, and
sells them. The operator estimates that finished steers will
sell for $67 per cwt. and that it will cost $175 per head to
bring them from the 750 pound purchase weight to the 1100
pound selling weight. What is the highest price the operator
can pay for 750 pound feeder steers to break even?
A. $64.77/cwt.
B. $67.60/cwt.
C. $70.27/cwt.
D. $74.93/cwt.
E. None of the above
24. A $1 deductible expense (before tax) will cost ______ after
tax if the farmer's marginal tax rate is 35%.
A. $0.00
B. $0.35
C. $0.65
D. $1.00
E. None of the above
25. A farmer has total assets of $630,000 of which land is
$400,000. The farmer's debt/equity ratio is 0.8. What will
the farmer's debt/equity ratio be if the value of land
inflates by 10%?
A. 0.698
B. 0.718
C. 0.744
D. 0.880
E. None of the above
26. If the U.S. wheat industry has an inelastic demand curve, a
decrease in the amount of wheat supplied to the market would
A. have no effect on total revenues in the wheat industry.
B. increase the total revenues in the wheat industry.
C. decrease the total revenues in the wheat industry.
D. cause a sharp increase in the demand for wheat.
E. None of the above
27. A farmer has a debt/worth ratio of 1:2. The current
liabilities total $30,000 and the non-current liabilities
total $90,000. What is the value of the assets?
A. $420,000
B. $360,000
C. $240,000
D. $120,000
E. None of the above
28. A cattle feeding operation has sales of $730,000, feed
purchases of $300,000, other costs of $400,000, an opening
inventory of $380,000, and a closing inventory of $400,000.
What is the net farm income for this operation on an accrual
basis?
A. $10,000
B. $30,000
C. $50,000
D. $730,000
E. None of the above
29. If corn silage as fed contains 65% moisture and 2.3% protein,
the dry matter would be what percent protein?
A. 2.80
B. 3.08
C. 6.57
D. 8.00
E. None of the above
30. On March 1, 1997, Kate borrowed $25,000 to plant corn. On
December 1, 1997, she repaid the $25,000 along with $1,734.37
interest. What annual interest rate did she pay?
A. 8.50%
B. 9.25%
C. 9.75%
D. 10.50%
E. None of the above
31. A producer sells 12 feeder steers for $80/cwt. The average
weight per steer is 650 pounds. There is a 3% sales
commission and yardage fees of $2.10 per head. The net
amount received for the pen of steers would be
A. $6,027.60
B. $6,028.36
C. $6,052.80
D. $6,214.80
E. None of the above
32. To consider the time value of money in analyzing alternative
farm investments, one should choose the investment with the
A. highest net present value.
B. largest net cash flow over the lifetime of the
investment.
C. highest average profits over the investment lifetime.
D. lowest cost.
E. None of the above
33. A $50,000 loan amortized at 8% interest for 20 years yields
annual payments of $5,092.61. How much of the first year's
payment is principal?
A. $1,092.61
B. $1,700.00
C. $2,592.61
D. $4,000.00
E. None of the above
34. For the above loan of $50,000, if the 20th and final payment
includes $377.23 of interest, what was the outstanding
principal balance after the 19th payment?
A. $5,688.07
B. $4,715.38
C. $4,622.77
D. $377.23
E. None of the above
35. For the above loan of $50,000, how much total interest is
paid over the life of the loan?
A. $101,852.20
B. $51,852.20
C. $43,000.00
D. $7,544.60
E. None of the above
36. At the beginning of last year, a farmer had an outstanding
loan for $125,000. The interest rate was 9% APR. If the
farmer made one loan payment at the end of the year of
$20,500, what was the outstanding balance at the end of the
year?
A. $104,500
B. $113,750
C. $115,750
D. $120,500
E. None of the above
37. A feedlot operator purchases a pen of 100 feeder steers with
an average weight of 788 pounds and sells them at an average
weight of 1081 pounds. Total feed cost for the pen is
$15,090. Feed cost per pound of gain is equal to
A. $0.440
B. $0.515
C. $0.649
D. $0.720
E. None of the above
38. In preparing a cash flow statement, one should not include
the following:
A. family living expenses.
B. interest payments.
C. tax refunds.
D. purchases on credit
E. None of the above
39. A trader with a long position in the futures market
A. profits when prices go down, loses when prices go up.
B. profits when prices neither go up nor down.
C. profits when prices go up, loses when prices go down.
D. loses when prices neither go up nor down.
E. cannot lose money.
40. Livestock, stored grain, land, and personal property used to
secure a loan are
A. collateral.
B. inventory.
C. liabilities.
D. net worth.
E. Illiquid.
41. Which of the following is not a supply shifter for farm
products?
A. Weather
B. New technology
C. Government programs
D. Consumer income
E. None of the above
42. 1998 hog prices are much lower than last year. Compared to
1997, hog farmers' demand for corn has
A. increased.
B. decreased.
C. not changed.
43. The Pig Palace Custom Feedlot purchased a group of feeder
pigs weighing 50 pounds each and sold them weighing 250
pounds after feeding them for 120 days. Each pig ate 630
pounds of feed during the feeding period. Average daily gain
for each pig in the group during the feeding period was
A. 1.67 pounds per day.
B. 2.08 pounds per day.
C. 3.25 pounds per day.
D. 5.25 pounds per day.
E. None of the above
44. The main reason for hedging is
A. to make more profit.
B. to insure against a production loss.
C. to reduce the price risk associated with producing or
storing a cash commodity.
D. to take an opposite position from the speculator.
E. None of the above
45. Cooperatives pay patronage refunds according to
A. one man, one vote.
B. size of farm.
C. amount of business done by patron.
D. total assets.
E. All of the above
46. A large portion of the Conservation Reserve Program acreage
has been released from the CRP program. This change will
impact beef supply and demand by causing
A. beef demand to increase.
B. beef demand to decrease.
C. beef supply to increase.
D. beef supply to decrease.
E. None of the above
47. Roundup ready soybeans are now widely used by farmers. This
has caused the demand curve for Treflan (a grass control
herbicide for soybeans) to move
A. upward and to the right.
B. downward and to the left.
C. not at all.
D. None of the above
Farmer Douglas will buy 600 pound steers in late October. He
will have to pay $80 per hundredweight for the 600 pound steers.
Expected annual prices for 1050 pound steers is $70 per cwt.
However, there is normally seasonal variation in fed cattle
prices. The monthly price indexes for slaughter steers are:
Index Index
January 102 July 96
February 103 August 97
March 104 September 98
April 103 October 99
May 100 November 101
June 97 December 100
48. What price for 1050 pound steers can Mr. Douglas expect for
an April selling date?
A. $67.96 per cwt.
B. $70.00 per cwt.
C. $71.03 per cwt.
D. $72.10 per cwt.
E. None of the above
49. What price can Mr. Douglas expect for a May selling date?
A. $67.96 per cwt.
B. $70.00 per cwt.
C. $71.03 per cwt.
D. $72.10 per cwt.
E. None of the above
50. Assuming an April selling date and all costs (excluding
purchase of the feeder steers) totals $200 per head, Mr.
Douglas can expect a profit of
A. less than $0 (he would lose money).
B. $0 - $49.99 per head.
C. $50 - $99.99 per head.
D. $100 - $149 per head.
E. over $150 per head.
_________________________________________________________________
1998 MISSOURI FFA FARM MANAGEMENT CONTEST
Problems Section
Choose the best answer and mark the corresponding numbered space
on the answer sheet. Each question is worth four (4) points.
There is only one correct answer for each question.
PROBLEM I - Balance Sheet
The Farm Financial Standards Task Force has recommended that farm
balance sheets be prepared with two time classifications --
current and non-current. Items that had been classified as
Intermediate or Long-term are now classified as non-current.
Using the information below, complete the net worth statement for
January 1, 1998:
Land . . . . . . . . . . . . . . . . . . . . . $207,000
Accounts payable . . . . . . . . . . . . . . . 6,500
Machinery and equipment. . . . . . . . . . . . 61,000
Cows . . . . . . . . . . . . . . . . . . . . . 16,000
Calves . . . . . . . . . . . . . . . . . . . . 3,600
Sows and boars . . . . . . . . . . . . . . . . 15,000
Market hogs . . . . . . . . . . . . . . . . . 50,000
Checking and savings . . . . . . . . . . . . . 17,800
Wheat. . . . . . . . . . . . . . . . . . . . . 4,800
Hog buildings . . . . . . . . . . . . . . . . 47,000
Feed and hay . . . . . . . . . . . . . . . . . 8,500
Accrued interest owed. . . . . . . . . . . . . 14,900
Accrued taxes owed . . . . . . . . . . . . . . 15,100
30-year land loan balance is $120,000.
$9,000 plus interest is due February 1 of each year.
10-year hog building loan balance is $44,000.
$11,000 plus interest is due August 31 of each year.
5-year tractor loan balance is $38,216.
$9,554 plus interest is due each February 1.
Current Assets: Current Liabilities:
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
Total _________________ Total _________________
Non-current Assets: Non-current Liabilities:
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
Total _________________ Total _________________
Total Assets ______________ Total Liabilities _________
Net Worth _________________
Questions 1 through 7 refer to PROBLEM I
1. The total value of current assets on January 1, 1998, was:
A. $81,100
B. $84,700
C. $91,200
D. $99,700
E. None of the above
2. The total value of non-current assets was:
A. $346,000
B. $358,000
C. $361,600
D. $411,600
E. None of the above
3. The total value of current liabilities was:
A. $30,000
B. $50,000
C. $66,054
D. $88,216
E. None of the above
4. The total value of non-current liabilities was:
A. $120,000
B. $172,662
C. $202,216
D. $232,216
E. None of the above
5. The net worth was:
A. $191,984
B. $232,216
C. $358,000
D. $442,700
E. None of the above
6. The current ratio was:
A. 0.197
B. 0.245
C. 0.780
D. 1.282
E. None of the above
7. The debt to asset ratio was:
A. 0.499
B. 0.554
C. 0.780
D. 1.804
E. None of the above
PROBLEM II -- Enterprise Budget
Use the following soybean budget to answer Questions 8 through
16.
SOYBEANS, per acre, bottomland (loam soil), owned equipment
_________________________________________________________________
Operating Inputs Units Price Qty. Value Your Value
Soybean seed Lbs. 0.250 45.000 $11.25 __________
Nitrogen (N) Lbs. 0.250 15.000 3.75 __________
Phosphate (P2O5) Lbs. 0.110 40.00 4.40 __________
Potash (K2O) Lbs. 0.080 40.00 3.20 __________
Pre-emerg. herbicide Acre 14.020 1.000 14.02 __________
Post-emerg. herbicide Acre 4.690 1.000 4.69 __________
Rent fert. spreader Acre 2.350 1.000 2.35 __________
Annual operating cap. Dol. 0.105 23.335 2.46 __________
Machinery labor Hour 6.00 2.027 12.16 __________
Mach. fuel,lube,repair Dol. 18.53 __________
Total operating costs $76.81 __________
Fixed costs
Machinery: Amount Value
Interest at 10.675% 184.08 19.65 __________
Depr., taxes, insurance 24.20 __________
Total fixed costs 43.85 __________
Production Units Price Qty. Value
Soybeans Bu. 5.90 34.00 200.60 __________
Total receipts 200.60
Returns above total operating costs 123.79 __________
Returns above all specified costs 79.94 __________
_________________________________________________________________
8. Total operating cost per acre is:
A. $2.46
B. $76.81
C. $79.94
D. $120.66
E. None of the above
9. The return above total operating cost per acre is:
A. $79.94
B. $120.66
C. $123.79
D. $200.60
E. None of the above
10. How many hours of labor are budgeted per acre?
A. 2.027
B. 6.00
C. 12.16
D. 76.81
E. None of the above
11. What is the total budgeted interest cost per acre?
A. $2.46
B. $19.65
C. $22.11
D. $43.85
E. None of the above
12. What price per bushel is paid for seed beans? (Hint: A
bushel of soybeans weighs 60 pounds.)
A. $5.90
B. $11.25
C. $15.00
D. $45.00
E. None of the above
13. What is the total specified fertilization cost per acre?
(ignore cost of labor and operating capital)
A. $3.75
B. $7.60
C. $11.35
D. $13.70
E. None of the above
14. What yield will cause returns above all specified costs to
equal zero?
A. 13.02 bu.
B. 20.45 bu.
C. 26.17 bu.
D. 31.59 bu.
E. None of the above
15. What will be the per acre returns above all specified
costs if one-third of the crop must be given to the
landlord for rent of the land?
A. -$5.26
B. $13.07
C. $53.29
D. $56.92
E. None of the above
16. If one-third of the crop is given as rent, what price
received for soybeans will make the per acre receipts
above all specified costs equal zero?
A. $5.32
B. $5.54
C. $5.89
D. $6.03
E. None of the above
PROBLEM III -- Income Tax Management
Use the following tables to calculate depreciation for questions
in Problem III.
ANNUAL DEPRECIATION PERCENTAGES FOR 5-YR PROPERTY, 150% DB
_________________________________________________________________
MID-QUARTER CONVENTION
Tax MID-YEAR Quarter placed in service --
Year CONVENTION 1 2 3 4
1 15.000% 26.250% 18.750% 11.250% 3.750%
2 25.500 22.125 24.375 26.625 28.875
3 17.850 16.520 17,062 18.637 20.212
4-5 16.660 16.520 16.763 16.567 16.404
6 8.330 2.065 6.287 10.354 14.355
Total 100.000 100.000 100.000 100.000 100.000
_________________________________________________________________
ANNUAL DEPRECIATION PERCENTAGES FOR 7-YR PROPERTY, 150% DB
_________________________________________________________________
MID-QUARTER CONVENTION
Tax MID-YEAR Quarter placed in service --
Year CONVENTION 1 2 3 4
1 10.714% 18.750% 13.393% 8.036% 2.679%
2 19.133 17.411 18.559 19.707 20.854
3 15.033 13.680 14.582 15.484 16.386
4 12.249 12.160 12.221 12.275 12.874
5-7 12.249 12.160 12.221 12.275 12.182
8 6.124 1.520 4.582 7.673 10.661
Total 100.000 100.000 100.000 100.000 100.000
_________________________________________________________________
ANNUAL FRACTIONS FOR STRAIGHT LINE OVER N YEARS (N less than 26)
_________________________________________________________________
MID-QUARTER CONVENTION
Tax MID-YEAR Quarter placed in service --
Year CONVENTION 1 2 3 4
1 1/2 7/8 5/8 3/8 1/8
2-N 1 1 1 1 1
N+1 1/2 1/8 3/8 5/8 7/8
_________________________________________________________________
Depreciation formula: Basis divided by N times number from above
table.
ANNUAL FRACTIONS FOR 27 1/2 YEAR PROPERTY, REGULAR MACRS
_________________________________________________________________
Tax Month Placed in Service --
Year 1 2 3 4 5 6 7 8 9 10 11 12
1 11.5 10.5 9.5 8.5 7.5 6.5 5.5 4.5 3.5 2.5 1.5 0.5
2-27 12 12 12 12 12 12 12 12 12 12 12 12
28 6.5 7.5 8.5 9.5 10.5 11.5 12 12 12 12 12 12
29 -- -- -- -- -- -- 0.5 1.5 2.5 3.5 4.5 5.5
_________________________________________________________________
Depreciation formula: Basis divided by 27 1/2 divided by 12
times number from above table.
ANNUAL FRACTIONS FOR 39 YEAR PROPERTY, REGULAR MACRS
_________________________________________________________________
Tax Month Placed in Service --
Year 1 2 3 4 5 6 7 8 9 10 11 12
1 11.5 10.5 9.5 8.5 7.5 6.5 5.5 4.5 3.5 2.5 1.5 0.5
2-39 12 12 12 12 12 12 12 12 12 12 12 12
40 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5 10.5 11.5
_________________________________________________________________
Depreciation formula: Basis divided by 39 divided by 12 times
number from above table.
On June 5, 1997, Sam traded combines. The old combine had a
remaining undepreciated value of $22,404. Sam paid $39,000
"boot" in the trade for the new combine.
17. The combine is:
A. 3-year property
B. 5-year property
C. 7-year property
D. 10-year property
E. None of the above
18. If Sam does not expense any of the cost of the combine,
then 1997 depreciation will be (use regular MACRS and mid-
year convention):
A. $2,400.36
B. $4,178.46
C. $6,578.82
D. $9,210.60
E. None of the above
19. If Sam expenses the maximum on the combine trade, and uses
the mid-quarter convention and regular MACRS, then 1997
depreciation will be:
A. $5,813.10
B. $5,880.06
C. $5,947.03
D. $8,223.84
E. None of the above
20. If Sam does not expense and uses the mid-year convention
and straight line depreciation over the alternate MACRS
life, his 1997 depreciation will be:
A. $1,950.00
B. $3,070.20
C. $4,386.00
D. $6,140.40
E. None of the above
21. If Sam uses regular MACRS, then the first year the combine
will appear on Sam's January balance sheet with a zero
book value will be in
A. 2004.
B. 2005.
C. 2006.
D. 2007.
E. None of the above
22. Under MACRS, a machine shed is classified as
A. 7-year property
B. 10-year property
C. 15-year property
D. 20-year property
E. None of the above
PROBLEM IV -- Supply and Demand
(See graph in separate file.)
The above graph represents the supply of wheat (S), the demand
for wheat in the U.S. (DUS), the demand for wheat for export (DF),
and the total demand of for wheat (DT).
23. What is the market equilibrium price of wheat in the U.S.?
A. P1
B. P2
C. P3
D. P4
E. None of the above
24. At the market equilibrium price, how much wheat will be
used in the U.S.?
A. Q1
B. Q2
C. Q3
D. Q4
E. Q5
25. At the market equilibrium price, how much wheat will be
exported?
A. Q1
B. Q2
C. Q3
D. Q4
E. Q5
26. Without foreign demand, the equilibrium price of wheat
would be
A. P1
B. P2
C. P3
D. P4
E. P5
For Questions 27 and 28, include foreign demand and assume higher
yields per acre cause the supply to increase from S to S1
27. The increased supply of wheat should cause wheat demand to
A. shift to the left and up.
B. shift to the right and down.
C. not change.
D. None of the above
28. Higher wheat yield would cause
A. exports of wheat to go up.
B. the equilibrium price of wheat to go down.
C. Both of the above
D. the foreign demand for wheat to shift left.
E. None of the above
PROBLEM V - Marketing
On July 10, a farmer has 5,000 bushels of wheat in his bins. He
sells it on January 15. Ignore commissions, storage cost, and
interest.
July 10 quotes: January 15 quotes:
March futures price = $3.70 March futures price = $3.45
Expected basis = $0.10 under Basis = $0.05 under the board
the board
Strike --- Premiums --- --- Premiums ---
price Call Put Call Put
$3.10 $0.73 $0.01 $0.58 $0.01
$3.20 $0.63 $0.02 $0.48 $0.02
$3.30 $0.53 $0.03 $0.38 $0.04
$3.40 $0.43 $0.08 $0.28 $0.11
$3.50 $0.33 $0.15 $0.19 $0.19
$3.60 $0.24 $0.24 $0.12 $0.29
29. What is the cash price of wheat on January 15?
A. $3.40
B. $3.45
C. $3.50
D. $3.60
E. None of the above
30. If the farmer sold a futures contract on July 10 and
bought back the contract on January 15, what would be the
realized price per bushel (cash + net on futures) for the
wheat?
A. $3.15
B. $3.25
C. $3.40
D. $3.65
E. None of the above
31. If the farmer bought a $3.40 Put on July 10 and sold the
Put on January 15, what would be the realized price per
bushel (cash + net on options) for his wheat?
A. $3.25
B. $3.37
C. $3.43
D. $3.55
E. None of the above
32. If the farmer bought a $3.40 Put and sold a $3.40 Call on
July 10, and sold the Put and bought back the Call on
January 15, what would be the realized price per bushel
(cash + net on options) for his wheat?
A. $3.22
B. $3.34
C. $3.46
D. $3.58
E. None of the above
33. Given all the information above, which of the following
actions taken on July 10 turned out to be the most
profitable?
A. Selling a futures contract.
B. Buying a $3.40 Put option.
C. Buying a $3.40 Put and selling a $3.40 Call.
D. Selling the wheat on July 10.
E. Taking no market action.
PROBLEM VI - Investment Analysis
Rich Farmer has 2,000 bushels of corn stored on his farm. He can
sell it at the local elevator for $2.30 per bushel. It will cost
him $.10 per bushel to haul it to the elevator. Rich is
considering feeding the corn to some hogs. He can buy 40 pound
feeder pigs for 65› per pound delivered to his farm.
Rich will grind and mix his own hog feed. His ration consists of
80 pounds of corn and 20 pounds of commercial feed supplement.
He can get the supplement delivered for $210 per ton.
Rich plans to market the hogs at 255 pounds. He thinks it will
take 130 days of feeding to reach that weight. He expects a 3.6
to 1 feed conversion ratio.
34. How many pounds of corn does Rich have? (Hint: Corn
weighs 56 pounds per bushel.)
A. 1,500
B. 5,600
C. 84,000
D. 112,000
E. None of the above
35. How much commercial feed additive will he need to buy to
mix with the 2,000 bushels of corn?
A. 21,000 pounds or 10.5 tons
B. 28,000 pounds or 14 tons
C. 50,000 pounds or 25 tons
D. 112,000 pounds or 56 tons
E. None of the above
36. Given the limited corn supply, how many pounds of gain (at
3.5 to 1) can Rich get if he feeds an 80-20 ration?
A. 29,474 pounds
B. 35,000 pounds
C. 36,842 pounds
D. 40,000 pounds
E. None of the above
37. What is the maximum number of feeder pigs should Rich buy
(assuming a zero death loss)?
A. 156
B. 157
C. 175
D. 186
E. None of the above
Rich decides to feed pigs. He buys 170 pigs which average 42
pounds each. Five die and he sells 165 which average 254 pounds.
He has 175 bushels of corn but no supplement left.
38. What feed conversion did Rich actually get?
A. 2.94 pounds of feed per pound of gain
B. 3.33 pounds of feed per pound of gain
C. 3.55 pounds of feed per pound of gain
D. 3.67 pounds of feed per pound of gain
E. None of the above
39. If Rich's costs (other than feed and pigs) were $30 per
pig purchased, what was Rich's breakeven selling price?
A. $32.82 per cwt.
B. $37.79 per cwt.
C. $39.22 per cwt.
D. $41.66 per cwt.
E. None of the above
PROBLEM VII - Time Value of Money
Use the following information to answer Questions 40-45.
Present Future Present
Value of Value of Value of
N a $1 a $1 Annuity
1 0.9259 1.0800 0.9259
2 0.8573 1.1664 1.7833
3 0.7938 1.2597 2.5771
4 0.7351 1.3605 3.3121
5 0.6806 1.4693 3.9927
6 0.6302 1.5869 4.6229
40. A field of alfalfa will produce $1,000 during the first
year, $4,000 during each of the next 4 years and $2,000
in the sixth year. What is the present value of this
income stream?
A. $14,453.50
B. $15,970.80
C. $18,157.10
D. $19,000.00
E. None of the above
41. A beef cow produces after-tax returns at the end of the
year of $60 per year for 5 years and can be sold for
$350 after-tax at the end of the fifth year. Assume
the above table uses the appropriate discount rate and
determine the current value of the cow.
A. $468.20
B. $477.77
C. $497.94
D. $589.56
E. None of the above
42. With one year of income remaining in a beef cow, how
much should she be worth using the above tables?
A. $379.62
B. $396.72
C. $454.82
D. $470.00
E. None of the above
43. If the farmer expects interest rates to decrease, but
no change in net returns to cattle, what impact is this
likely to have on the present value of the beef cow?
A. Decrease the present value
B. Increase the present value
C. Would not change the present value
D. Cannot tell
44. What is the annual payment on a $25,000 loan amortized
over 6 years?
A. $4,166.67
B. $5,065.71
C. $5,407.86
D. $15,755.00
E. None of the above
45. What discount rate is used in the above table?
A. 7.4%
B. 8.0%
C. 9.5%
D. 10.8%
E. None of the above
PROBLEM VIII - Partial Budgeting
Frank Frogfarmer is having financial problems with his farm being
able to provide the level of net income desired. He is
considering switching a cow-calf enterprise to a yearling
enterprise. Having successfully completed four years of
Agricultural Education in Snake Navel High School, this
enterprising young rancher decided to use a partial budget
technique to determine if the change should be made.
He estimated he would sell 194 head of yearlings weighing 750
pounds each at $87 per hundredweight. Total labor associated
with the yearling enterprise is $3,200. He estimated 200 feeder
calves would cost $100,000 and consume $2,800 of supplemental
feed. Interest charge on the investment associated with the
yearling enterprise is $4,750. He must purchase a $5,500 piece
of new equipment for the yearling enterprise (figure annual
charges at 20% of purchase price).
Mr. Frogfarmer determined annual costs for the cow-calf
enterprise to be:
(a) feed -- $3,600; (b) two replacement bulls at $1,200/head; (c)
labor -- $5,400; and (d) interest on cow herd investment --
$7,000. In addition to a reduction in the previous listed costs
associated with the cow-calf herd, receipts would be reduced by
$34,220 per year.
Use the space below to determine if the change in enterprises
should be made.
Additional Receipts:
Sale of yearlings 46. $________
Reduced Costs:
Labor $_________
Feed _________
Replacement bulls _________
Interest _________
Subtotal 47. $_________
Total of additional receipts
and reduced costs $_________
Additional Costs:
Labor $_________
Feed _________
Cattle purchases _________
Equipment charges _________
Interest _________
Subtotal 48. $_________
Reduced Receipts:
Calves, cows, bulls 49. $_________
Total additional costs and
reduced receipts $_________
Net change in income 50. $_________
46. If Frank Frogfarmer makes the change to backgrounding
feeder calves, his additional receipts will be:
A. $79,000
B. $101,000
C. $126,585
D. $140,000
E. None of the above
47. Frank's reduced costs will be:
A. $7,400
B. $11,000
C. $18,400
D. $25,400
E. None of the above
48. The additional costs associated with this change are
A. $22,436
B. $111,850
C. $122,436
D. $142,360
E. None of the above
49. The reduced receipts will be
A. $28,820
B. $34,220
C. $52,491
D. $100,000
E. None of the above
50. The net change in income will be:
A. a gain of $144
B. a loss of $144
C. a gain of $1,085
D. a loss of $1,085
E. None of the above
_________________________________________________________________
1998 STATE FFA FARM MANAGEMENT CONTEST
Key
Multiple Choice
1. B 11. C 21. B 31. A 41. D
2. B 12. C 22. C 32. A 42. A
3. D 13. A 23. D 33. A 43. A
4. D 14. A 24. C 34. B 44. C
5. C 15. D 25. B 35. B 45. C
6. C 16. B 26. B 36. C 46. C
7. C 17. C 27. B 37. B 47. B
8. B 18. A 28. C 38. D 48. D
9. D 19. B 29. C 39. C 49. B
10. E 20. C 30. B 40. A 50. C
Problems
1. B 11. C 21. B 31. C 41. B
2. A 12. C 22. D 32. D 42. A
3. C 13. D 23. D 33. A 43. B
4. B 14. B 24. B 34. D 44. C
5. A 15. B 25. A 35. B 45. B
6. D 16. A 26. B 36. D 46. C
7. B 17. C 27. C 37. D 47. C
8. B 18. C 28. C 38. D 48. B
9. C 19. A 29. A 39. C 49. B
10. A 20. B 30. D 40. A 50. D