Farm and Ranch Management Exam 3
questions n answers
When a producer hedges their crop using futures contract, they are essentially insuring they will
have the highest price possible no matter what. - correct answer ✔✔False
When forward contracting cattle a price slide is used to protect both the buyer and seller as
selling weight is an estimate. - correct answer ✔✔True
When a producer uses an option (specifically buys a put option), the maximum they can lose is
the premium. Much like automobile insurance the maximum amount you lose is the premium
(and the deductible if you have to file a claim). - correct answer ✔✔True
If a producer is short one Dec Corn contract they will offset their futures position by: - correct
answer ✔✔None of the above
- Buy a dec corn contract
If a producer sees you in town and mentions they sold their fat cattle for $1.37, they would be
in $/bu. - correct answer ✔✔False
- Cattle are measured in lbs.
The price risk management tool for producers that is most commonly used is: - correct answer
✔✔Forward contract
One of the draw backs to a forward contract is default risk. - correct answer ✔✔True
, Which risk management tool is the best? - correct answer ✔✔Forward contract
Basis is calculated as: - correct answer ✔✔cash price - futures price
If I was short a futures corn contract at $6.50/bu. and I offset that position at $6.00/bu. - correct
answer ✔✔You made $0.50/bu.
The true probability for a population can be calculated. - correct answer ✔✔False
Even farmers with good risk-bearing ability may be risk avoiders. - correct answer ✔✔True
If cotton yield has a higher calculated standard deviation than soybean yield, it necessarily
means that cotton is "riskier" to produce. - correct answer ✔✔False
Most farmers are more likely to accept a risk if - correct answer ✔✔only a small possible loss is
involved.
On a certain farm alfalfa yields have been 4.3, 7.2, 5.6, 3.6, 6.7, 7.2, 5.5, 5.7, 4.8, and 5.4 tons
per acre in the last 10 years. Assuming past yields are a good indicator of future yields, what is
the most likely yield range for the coming year? - correct answer ✔✔4 to 5 tons per acre
Using the data in the previous question, what is the expected value for the farm's alfalfa yield, if
each past result is given equal weight? - correct answer ✔✔5.6 tons per acre
Producing several enterprises that are not closely correlated with respect to production and
prices can reduce year-to-year net income variability. - correct answer ✔✔True
questions n answers
When a producer hedges their crop using futures contract, they are essentially insuring they will
have the highest price possible no matter what. - correct answer ✔✔False
When forward contracting cattle a price slide is used to protect both the buyer and seller as
selling weight is an estimate. - correct answer ✔✔True
When a producer uses an option (specifically buys a put option), the maximum they can lose is
the premium. Much like automobile insurance the maximum amount you lose is the premium
(and the deductible if you have to file a claim). - correct answer ✔✔True
If a producer is short one Dec Corn contract they will offset their futures position by: - correct
answer ✔✔None of the above
- Buy a dec corn contract
If a producer sees you in town and mentions they sold their fat cattle for $1.37, they would be
in $/bu. - correct answer ✔✔False
- Cattle are measured in lbs.
The price risk management tool for producers that is most commonly used is: - correct answer
✔✔Forward contract
One of the draw backs to a forward contract is default risk. - correct answer ✔✔True
, Which risk management tool is the best? - correct answer ✔✔Forward contract
Basis is calculated as: - correct answer ✔✔cash price - futures price
If I was short a futures corn contract at $6.50/bu. and I offset that position at $6.00/bu. - correct
answer ✔✔You made $0.50/bu.
The true probability for a population can be calculated. - correct answer ✔✔False
Even farmers with good risk-bearing ability may be risk avoiders. - correct answer ✔✔True
If cotton yield has a higher calculated standard deviation than soybean yield, it necessarily
means that cotton is "riskier" to produce. - correct answer ✔✔False
Most farmers are more likely to accept a risk if - correct answer ✔✔only a small possible loss is
involved.
On a certain farm alfalfa yields have been 4.3, 7.2, 5.6, 3.6, 6.7, 7.2, 5.5, 5.7, 4.8, and 5.4 tons
per acre in the last 10 years. Assuming past yields are a good indicator of future yields, what is
the most likely yield range for the coming year? - correct answer ✔✔4 to 5 tons per acre
Using the data in the previous question, what is the expected value for the farm's alfalfa yield, if
each past result is given equal weight? - correct answer ✔✔5.6 tons per acre
Producing several enterprises that are not closely correlated with respect to production and
prices can reduce year-to-year net income variability. - correct answer ✔✔True
