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Team Participation Event Team Portion (35 pts.) 2007 Iowa Vo-Ag/FFA Farm Business Management Career Development Event

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Team Participation Event Team Portion (35 pts.) 2007 Iowa Vo-Ag/FFA Farm Business Management Career Development Event As a group (or team), you are to collectively select the best answer to each question
Team Participation Event Team Portion (35 pts.) 2007 Iowa Vo-Ag/FFA Farm Business Management Career Development Event As a group (or team), you are to collectively select the best answer to each question below (7 pts. each). Code your answers on the answer sheet provided (one answer sheet per team). Be sure to erase completely any answers that your team changes. This activity is designed to test your ability as a group to 1) apply your knowledge of economic and business concepts to actual firm decisions, and 2) generalize and summarize the basic content and implications of economic articles and reports. The applications will focus on information summarized in selected publications previously cited as reference materials for this event. In particular, this activity focuses on sub topics of farm management related to corn production and marketing which is important to many Iowa farmers if they want to improve the returns to their agricultural operations. Iowa State University has conducted a number of rotation-fertility studies on the Experiment Station farms. These studies involve several different possible rotations and, usually, four levels of nitrogen use. Four rotations from the Iowa State University Northeast Research farm include continuous corn (CC), corn/soybeans (CS), corn-corn-soybeans (CCS), and corn-corn-cornsoybeans (CCCS). Table 1 shows average yields for based on rotation type and nitrogen fertilizer level (N = pounds). Table 1. Average Yields Based on Rotation and Nitrogen Fertilizer Level and Time Period, Northeast Research and Demonstration Farm, Iowa State University Crop 0 N 80 N 160 N 240 N Continuous Corn (CC) Corn in CS st corn in CCS nd corn in CCS 1 st corn in CCCS 2 nd corn in CCCS 3 rd corn in CCCS Soybeans in CS CCS CCCS Source: AgDM newsletter, November 2006, Mike Duffy 1. Based on information in Table 1, which of the following incremental 80 pounds of N has the largest incremental corn yield impact? a. from 80 N to 160 N in the first corn year of a CCS rotation b. from 160 N to 240 N in corn of a CS rotation c. from 0 N to 80 N in the second corn year of a CCS rotation d. from 80 N to 160 N in the third corn year of a CCCS rotation 2. What is the marginal product of N in Table 1? a. the incremental cost of another pound of N b. the incremental yield of corn per each additional N applied c. the incremental yield of corn in a CS rotation versus a continuous corn rotation d. the additional revenue from corn per additional bushel of corn produced 3. Assume a farmer in Table 1 is using a continuous corn rotation and the farmer s only variable cost is N. Whether or not the farmer would apply 160 N instead of 80 N would depend on: a. only the price of N b. only the price of corn c. only the price of corn and the cost of the land d. only the price of N and the price of corn 4. Refer to Table 1. Assume a farmer is choosing between a continuous corn rotation with 160 N (150 bu. yield each year) and a CS rotation with 160 N (181 bu. corn yield one year and 54.3 bu. soybean yield the second year). Over a two-year period, what price of corn per bushel would make the continuous corn rotation preferred also assuming the price of soybeans per bushel is $5.50, other extra costs (other than N ) per acre of corn versus soybeans are $100, and the price of N = $0.30 per pound? Disregard time value of money considerations. Also note, over two years, the producer would use an extra 160 pounds of N with a continuous corn rotation. a. $3.75 b. $5.00 c. $4.67 d. $ Assume on May 10, a corn producer attempts to establish a price for his/her new crop this year by hedging with December futures currently trading at $3.80 and the expected basis at delivery time is 35 cents under the December futures contract. This producer s expected net price at delivery time (ignoring hedging/commission costs) is: a. $3.80 b. $4.15 c. $3.45 d. the current cash price + $0.35 6. Assume a grain elevator in October agrees to buy 10,000 bushels of corn to be delivered in December for 40 cents under the current December corn futures price of $3.65. If the elevator expects to receive a 40 cent gross storage return for storing the corn for 5 months to May, it would most likely: a. have to sell cash corn for $3.95 in May b. currently sell 10,000 bushels of May corn futures at 3.75 with an expected May delivery basis of 10 cents c. have to currently sell May corn futures for $4.05 d. have to currently sell December corn futures for $ In December, assume the March corn futures price is $3.70 with an expected March basis of 25 cents. The current cash corn price locally in December is $3.00. Which of the following is the most likely maximum cash bid price that would be offered to a producer for March delivery by a local elevator if it wants to generate a 5 cent per bushel margin? a. $2.70 b. $3.20 c. $3.40 d. $3.90 Team Participation Event Individual Portion 2007 Iowa Vo-Ag/FFA Farm Business Management Career Development Event (Maximum possible pts: 5 per individual and 15 per team) Instructions: The questions below are related to the problems you just worked on as a team. Select the best answer (1 pt. each). Code your answers on the answer sheet provided. Be sure to erase completely any answers that you change. 1. In 1930, there were million acres planted to principal crops in Iowa. In 2006, the corresponding number of acres was million. Which of the following statements best characterizes the change in the composition of those planted acres from 1930 to 2006? a. the percentage of acres devoted to corn has increased substantially b. the percentage of acres devoted to corn has decreased substantially c. the percentage of acres devoted to soybeans has decreased substantially d. the percentage of acres devoted to soybeans has increased substantially 2. A November 2006 AgDM newsletter article by Dr. Mike Duffy, ISU extension economist, contained recent yield data based on research done at ISU Experiment Station farms. Which of the following variables were shown to impact corn yields? a. nitrogen fertilizer level, rainfall level b. nitrogen fertilizer level, crop rotation plan c. rainfall level, crop rotation plan d. price of corn, price of nitrogen fertilizer 3. Assume in January, a farmer has hedged (using March futures) some corn in storage on the farm. The net price this farmer receives in March for his/her corn will be most adversely impacted by which of the following: a. the basis in March turns out to be 10 /bushel greater than expected b. the cash corn price decreases 15 /bushel from January to March c. the futures corn price increases 10 /bushel from January to March d. storage costs increase 2 /bushel per month 4. Which of the following is associated with the economic law of diminishing product in corn production? a. corn basis typically decreases after harvest b. price risk is diminished with hedging c. corn yields increase at a decreasing rate as nitrogen fertilizer levels increase d. an increase in the price of nitrogen fertilizer has no impact on the best amount of fertilizer to apply in corn production 5. In December, a corn farmer has received a cash bid price from a local elevator on corn he/she plans to deliver in the future in March. The two main components of this cash price bid are: a. the March corn futures price and the December corn futures price b. the current cash corn price and the expected corn basis in March c. the current March corn futures price and the expected corn basis in March d. the current cash corn price and the December corn futures price 2007 Iowa Farm Business Management Career Development Event INDIVIDUAL EXAM (150 pts.) Select the best answer to each of the 75 questions to follow (2 pts. ea.). Code your answers on the answer sheet provided. Be sure to erase completely any answers that you change. You have 120 minutes (maximum) to complete this exam. Section A. Economic Principles 1. A demand curve for a product shows the different combinations of: a. quantity supplied and quantity demanded b. consumer income and quantity demanded c. the product s price and quantity demanded d. sales and total revenue 2. A straight line has the equation y = x, where x is the horizontal axis variable. The y-axis intercept of this line is: a. +20 b. 2x c. +2 d The point of intersection of a market demand curve and a market supply curve is known as the point of: a. equilibrium b. diminishing returns c. break even d. profit maximization 4. An increase in the willingness and ability to purchase a product by consumers in a market would be shown graphically as a shift: a. right of a supply curve b. right of a total revenue curve c. up of a supply curve d. right of a demand curve 5. Which of the following is the economic meaning of an average cost? a. typical cost in the past b. typical cost for a typical producer c. cost per unit of output d. cost of an average quality product 6. An opportunity cost is: a. the cash cost of an opportunity pursued b. the noncash cost of an opportunity foregone c. the cash cost of an opportunity foregone d. what one has to pay up front to pursue an opportunity 7. Total revenue divided by the price of the output is: a. marginal revenue b. quantity of output c. price of the output d. average revenue 8. A variable cost is normally defined as one that varies with: a. time b. quantity of output c. price of the output d. uncertainty 9. The point of diminishing returns is where a. total revenue starts to decline b. total product starts to decline c. break even is achieved d. marginal product starts to decline 10. Assume products x (= ethanol) and y (= petroleum) are substitutes. A decrease in the price of x is most likely to have this impact: a. shift the demand curve for x to the right b. shift the demand curve for y to the left c. shift the supply curve of y to the right d. a surplus of y 11. How responsive producers output in a market is to changes in the price of the product they are producing is known as: a. price elasticity of supply b. technological change c. market demand d. tastes and preferences 12. Which of the following is true for a firm that is NOT minimizing its costs of producing a given level of output? a. it is not producing the profit-maximizing output b. costs can NOT be reduced c. profit is not maximized d. breakeven output has been surpassed 13. What are the two main types of production periods? a. fixed and variable b. increasing and decreasing c. profitable and nonprofitable d. long run and short run 14. What is the economic term used to describe products purchased from a foreign country? a. imports b. gross foreign product c. exports d. trade deficit 15. If a firm can sell all of its output at the going market price of $4.00, what is the firm s marginal revenue of selling its last unit of output if it produces 1,000 units. a. $4,000 b. $250 c. $4.00 d. $(4.00/1000) 16. If a farmer has a 30% marginal tax rate and a before-tax cost of $2.00, what is the farmer s after-tax cost? a. $2.00 b. $2.30 c. $2.60 d. $ A farmer has $100,000 in equipment used exclusively for cotton. The equipment will last five years and have a salvage value of $0. The farmer plants 1000 acres of cotton per year. If the interest rate is 8% on average annual investment, what will be the fixed costs per year (depreciation and average interest) for this machinery per acre of cotton? a. $16 b. $20 c. $24 d. $ The financial statement which is used to list assets, liabilities, and owner s equity of a farm business is the: a. balance sheet b. income statement c. partial budget d. cash flow statement 19. A used combine can be purchased for $180,000. Total annual fixed costs are $15,000, and variable cost per acre is $10. If a custom operator charges $25 per acre, what is the minimum number of acres needed to justify buying the combine? a b. 600 c d A feedlot operator purchased 100 feeder steers with an average weight of 600 pounds and sells them at an average weight of 1,050 pounds. The total feed cost is $25,000. Feed cost per pound of gain is: a. $0.02 b. $0.23 c. $0.42 d. $ A farm s wheat yield has averaged 35 bushels per acre while the sunflower yield has averaged 1500 pounds per acre. Production costs for wheat are $ per acre and for sunflowers are $ per acre. If the price for wheat is $3.65 per bushel, what price per hundredweight for sunflowers would equal the net return for wheat? a. $7.73 b. $8.07 c. $8.85 d. $ Which of the following is usually assumed to result in a limited number of possible choices in Economics? a. unlimited wants b. constraints such as budgets c. time value of money d. consumer tastes and preferences 23. Which of the following economic terms is most closely associated with declining longrun average costs as output increases? a. economies of size b. law of supply c. law of diminishing returns d. specialization 24. For an item that is extremely limited in supply, such as an acre of land in a given area, the price of that land is primarily determined by: a. the level of demand b. a price floor c. the owner of that land d. factors other than supply and demand 25. A shortage of a product in a market normally means: a. supply exceeds demand b. there is no supply c. the market price is restricted to a level below equilibrium d. supply has decreased Section B. Records and Analysis Use the attached ending net worth statement (balance sheet) and net farm income statement to answer questions # What was this farm s market value net worth on Dec. 31, 2006? a. $595,514 b. $1,122,379 c. 1,236,095 d. 1,762, The farm s market value net worth increased by from a year ago. a. $57,381 b. $96,546 c. $538,133 d. $1,025, The main difference between this farm s market value net worth and cost value net worth is: a. stored grain was valued at a higher price this year b. land is valued at a price higher than its original purchase price c. machinery has depreciated in value d. they purchased more land 29. Using market values, the farm s total debt-to-equity ratio is: a. 44% b. 108% c. 36% d. 57% 30. How much is this farm s working capital? a. $15,000 b. $304,760 c. $171,186 d. $1,122,379 31. From the Net Worth Statement and Net Farm Income Statement, what was this farm s asset turnover ratio for 2006 using market values? a. 21% b. 18% c. 30% d. 6% 32. From the Net Farm Income Statement, how much was this farm s net farm income after adjusting for capital gains? a. $93,532 b. $91,532 c. $95,532 d. $113, From the Net Farm Income Statement, what was the value of this farm s net (to gross) farm income ratio? a. 29% b. 26% c. 39% d. 35% Use the attached cash flow budget projection to answer questions # How much cash does this farm expect to take in from livestock sales during the coming year? a. $96,004 b. $211,400 c. $20,161 d. $75, Approximately, how many dollars of operating loans does this farm need to borrow in Jan.-Feb. to have a positive cash balance at the end of February? a. none b. $46,000 c. $31,000 d. $103, This farm plans to trade for a new pickup this year. In what period do they plan to do this? a. Jan.-Feb. b. Mar.-Apr. c. July-Aug. d. Nov.-Dec. 37. How much is this farm s projected net farm income for 2007? a. $648,784 b. $16,383 c. $31,408 d. Can t tell from the cash flow budget. 38. Which of the following expenditures is included in both a cash flow budget and a net farm income statement? a. wages paid b. off-farm rental income c. principal payments on a loan d. depreciation 39. If this farm uses its ending cash balance to pay down its operating loan balance at the end of the year, will the balance be larger or smaller than at the beginning of the year? a. larger b. smaller c. same d. can t tell 40. This farm s projected total cash outflows for the year are? a. $102,607 b. $46,954 c. $310,509 d. $16,383 Refer to the attached Farrow to Finish budget to answer questions # How much profit per litter is projected (to the nearest $)? a. $1,113 b. $274 c. $113 d. $1, What price per pound is needed from market hog sales to just pay for all costs? a. $.48 b. $.45 c. $.43 d. $ In this budget, how high could the price of corn go before income over all costs would be zero? a. $4.61 b. $1.16 c. $2.29 d. $5.00 44. How much is the projected feed cost per pound of pork sold for this budget? a. $.227 per lb. b. $2.05 per lb. c. $61.73 per lb. d. $.182 per lb. 45. What percent of total projected costs are fixed? a. 19% b. 84% c. 0% d. 16% Refer to the attached Potatoes budget to answer questions # How much is the estimated returns over total costs (i.e. profit) per bed in this budget? a. $ b. $88.35 c. $72.22 d. $ What is the approximate breakeven price needed to cover all costs if the crop yield is only 100 pounds per bed? a. $.74 b. $.88 c. $1.25 d. $ If the cost of labor (for both planting and harvesting) is $12 per hour instead of $10, by how much will total variable costs per bed increase? a. $5.60 b. $33.60 c. $10.20 d. $ Assuming that the land, machinery and irrigation system will be owned anyway, how much revenue per bed would be needed to justify planting the crop? a. $88.35 b. $77.78 c. $10.57 d. $61.65 50. How much would the projected total receipts be for a whole acre (43,560 sq. ft.) of potatoes instead of one 100 x 4 bed? a. $15,000 b. $1,980 c. $3,750 d. $16,335 Section C. Risk Management 51. Retirement payments at old age (and to survivors) along with disability benefits and medical benefits are available mainly due to: a. the capital gains tax b. the social security tax c. Roth IRA s d. gift taxes 52. A wider basis means there is greater difference between: a. the prices of two futures contracts b. two cash market prices c. a futures price and a cash market price d. a borrowing interest rate and a savings interest rate 53. Which of the following is generally recognized as a main advantage of incorporating a family farm business? a. less financial risk for the owners b. expanded markets c. lower production costs d. greater borrowing ability 54. The number of futures contracts traded during a given period of time is called: a. volume b. open interest c. options d. speculative interest 55. When is a cattle feeder farmer who has hedged future corn purchases most likely to receive a margin call? a. cash corn prices increase b. corn futures prices increase c. corn futures prices decrease d. corn production costs increase 56. Which of the following would most likely warrant an increase in production by a firm? a. the firm is making money b. the firm s cash flow is positive c. the firm has low fixed costs d. the firm s marginal revenue exceeds the firm s marginal cost 57. If you buy a put option you have the: a. right to sell a futures contract b. obligation to make delivery on a futures contract c. right to buy a futures contract d. obligation to take delivery on a futures contract 58. Crop share and cash are alternative: a. rental agreements b. depreciation calculation methods c. inventory valuation methods d. loan repayment methods 59. In July a farmer sells November futures at $5.45 to hedge new crop soybeans. At harvest, the farmer buys back the contract for $4.85 and sells soybeans in the cash market for $4.75. What is the net price of soybeans received by the farmer (ignoring all commission fees). a. $5.45 b. $5.15 c. $5.35 d. $ The following corn producer who is most likely to benefit from rising corn prices is one who previously: a. sold corn futures b. sold corn call options c. bought corn put options d. sold corn with a cash forward contract 61. If a farm firm leases machinery, it: a. buys machinery on contract b. borrows money to repair machinery c. loans machinery to another producer d. rents machinery 62. Money to be received at some time in the future is worth: a. more the further into the future the money is to be received b. less the further into the future the money is to be received c. more the higher the interest rate is d. both b and c are true 63. Margins and commissions are typi
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