• Purpose

• Objectives

• Trading Instructions:
  • I. Format
  • II. Trading methods:
    • Cash/Cash Forward Contract
    • Futures Contract
    • Option Orders
  • III. Scoring
  • IV. Managing your team account
    • How to place an order
    • How to access your team account statement
    • How to access your profit and loss report
    • Prize awards

Purpose:

Objectives:

1. To practice decision-making skills involved in marketing a farm commodity;
2. To learn how to manage the risk of a fluctuating market when buying/selling a farm commodity;
3. To identify various methods of marketing farm commodities including: cash, forward contracts, futures and options;
4. To complete mathematical equations to determine the value of various marketing alternatives;
5. To understand the terms and strategies of various marketing methods; and
6. To practice trading corn, soybeans, wheat, soymeal, milk, live cattle and lean hogs.

RMEY Trading Activity Instructions:

I. FORMAT

• A. Each simulated farm begins the trading activity owning the physical equivalent of two futures contracts worth of the following commodities:

  Commodity	Futures Exchange	Contract Size
  Corn	Chicago Board of Trade	5,000 bushels
  Soybeans	Chicago Board of Trade	5,000 bushels
  Wheat	Chicago Board of Trade	5,000 bushels
  Soymeal	Chicago Board of Trade	100 tons
  Milk	Chicago Mercantile Exchange	200,000 pounds
  Live Cattle	Chicago Mercantile Exchange	40,000 pounds
  Lean Hogs	Chicago Mercantile Exchange	40,000 pounds

  Each simulated farm starts out already owning the physical commodities, such as grain stored in a bin or milk in a bulk tank. A simulated farm begins the activity owning 10,000 bushels of corn, 10,000 bushels of soybeans, 10,000 bushels of wheat, 200 tons of soymeal, 400,000 pounds of milk, 80,000 pounds of live cattle and 80,000 pounds of lean hogs. For this activity, the amounts owned are determined by the size of the futures contracts. The simulated farm does not start owning futures.

• B. To begin marketing, students need to use sound economic reasoning as they consider the following:
  1. Economic factors affecting agricultural commodities;
  2. Timing of sales and purchases;
  3. Pricing methods used; and
  4. Management of risk.

• C. FOR THIS ACTIVITY, A TEAM MAY NEVER BE NET LONG OR NET SHORT MORE THAN TWO CONTRACTS. In market terms, the farm begins the activity "net long" two contracts of each commodity it has selected. The term "long" means owning or being under contract to buy, while the term "short" means having sold or being under contract to sell.

  Example:

  1. A team can sell one or two futures contracts, but not three.
  2. The team could not buy a contract of a commodity unless it had first sold at least one contract of that commodity. This is because they were long two cash contracts at the start.

• D. Students must place all orders on-line for their simulated farm at http://www.rmey.com by clicking at the top of the page on the trading tab. (See "How to Place an Order" in Section IV.)
  1. Orders are entered for each team in the order they are placed. Once orders are submitted, they cannot be changed.
  2. You can view your team Account Statement at any time during the activity. The trades will be listed in chronological order for each commodity with cash sales listed last. (See "How to Access Your Team Account Statement" in Section IV.)
  3. All orders are considered "day orders." Therefore, all orders placed after 9:00 a.m. CST will be executed the next trading day. All unfilled orders are canceled at the end of each trading day.

• E. For futures and options orders, one trading month is used for each commodity. Use the months listed below:

  NOTE: contract months are posted just prior to active trading sessions.

II. TRADING METHODS

Students will be able to choose from this wide range of marketing strategies:

• A. Cash/Cash Forward Contract: A team can only sell on the cash OR cash forward market ONCE per contract. Remember, once you have sold on the cash market, the commodity is no longer physically on your farm. You probably have delivered it to a nearby elevator. If you choose to sell your commodity with a cash forward contract, you have committed that commodity to a future sale at an agreed upon price.
  1. All commodities must be sold by either cash or cash forward contract by 9 a.m. on the last day of trading.
  2. During the trading session, teams that have made cash sales or have entered into cash forward contracts will be allowed to replace up to the amount sold with long futures or call option contracts. These contracts must also be flat by the end of the trading session.

• B. Futures Contract: Three types of futures orders will be accepted. All orders for this activity are day orders. This means that if an order is not filled on the day for which it was placed, it will be canceled. The three types of orders are:
  1. Market Order: A market order placed will receive the opening price posted at the futures exchange on which the commodity is traded.
  2. Price or Better: The team will enter an order for a specific price. The order may result in one of the following:
     • a) If the market opens at a better price level than the order states, the team will receive the opening price.
     • b) If the market opens at a price worse than the order states but does at some time during the session reach the stated price, the team receives the requested price.
     • c) If the market never reaches the requested price, the order is not filled that day, and as a "day order" it will be canceled.
  3. Stop: A stop order can be used to enter or exit a market position if the prices reaches the specific price level during the day for which it was placed. All stop orders are day orders; thus, if a stop is not filled it is canceled and must be replaced each day that a trader wishes to have the stop order in place. Sell stops are placed below the current market and buy stops are placed above the current market. If the market reached your order price during trading, your fill price will be your stop order price. If the market opens worse than your stop order price, your fill price will be the market opening price.

  Closing Futures Positions: To exit a futures position, you must do an equal but opposite transaction. Example: if you are long one corn future, you must sell one corn futures. If you are short one corn futures, you must buy one corn futures.

  All futures positions must be exited the last day of trading before 9:00 a.m. CST. For all positions in a commodity not closed by the team (i.e., your position is not flat in a given commodity), ALL activity points AND profit and loss points will be EXCLUDED from your final score.

• C. Option Orders: The following apply for both put and call options:
  1. Two types of option orders will be accepted: Market and Price or Better. All orders are day orders.
  2. DESIGNATED STRIKE PRICE LEVELS will be traded based upon closing price levels on the Friday prior to the opening of trading activity.
  3. You cannot sell any option that you do not own. Therefore, you must first buy an option. To exit an option, the team must sell an option of the same strike price. You cannot offset a call with a put. Example: If a team has purchased a 3.50 corn call, it can exit that position only by selling a 3.50 corn call.

     NOTE: If the strike price does not trade that day, you will not be filled, even if you entered it as a market order.

  4. All options must be flat by 9:00 a.m. CST on the last day of the trading activity. If the team does not close out its positions for all commodities, a profit and loss will not be calculated for the team and no profit points will be added to the trading score.

  Put Options:
  Teams may buy puts against cash inventory, since a long put option is considered a short position. Inventory cannot be sold by another method while it is covered by put options. That would place the team in a "net short" position. You also cannot sell an option before you buy an option. That would be speculation.

  Call Options:
  Teams that have made cash sales or have entered into cash forward contracts will be allowed to replace up to the amount sold with futures call option contracts.

III. Scoring:

• A. Market Action Points: Each team can earn a maximum of 29 points through marketing their commodities. The objective is to encourage and reward teams for trying a variety of marketing alternatives. No points are received for bad orders or orders not filled. Market action points are awarded as follows:
  1. For each commodity in which a team executes an order, they will receive 2 points. Up to 14 points are available if trades are completed in all seven commodities.
  2. For each futures or options contract which is entered and exited prior to the end of the competition, a team will receive 1 point. Up to 15 points are available.

• B. Methods Points: For each marketing method used; i.e., futures, cash, options, cash forward contract; a team will receive 5 points. A maximum of 20 points is available.

  Scoring Example (for market action and marketing methods points): Assume a team sells corn, soybeans and wheat on the cash market and they also buy and sell two live hog put options.

  2 methods x 5 =	10 points
  4 commodities x 2 =	8 points
  2 options trades x 1 =	2 points
  Total earned	20 points

• C. Profitability Points: A total of 5 points can be earned based upon the profitability of the trades executed by a team.
  1. Teams that earn a profit and are flat in all positions on their futures and options trades will receive the 5 profitability points.
  2. Profitability is determined by subtracting buying price from selling price on futures and options transactions only. Cash and forward contracts have no impact on profit calculation.
  3. The total points available are small, because the emphasis in this activity is on learning. Most of the trading activity points are awarded for market actions to encourage teams to become acquainted with all of the available marketing tools and to experiment with a variety of marketing strategies. The more action a team takes, the more team members will learn about markets.

IV. Managing Your Team Account

• A. HOW TO PLACE AN ORDER:
  1. Go to http://www.rmey.com
  2. Click on the "Trading Activity" tab at the top of the page.
  3. Enter username
  4. Enter password
  5. Enter your Team User Name.
  6. Enter Team Password.
  7. Click on "Enter Orders On-line."
  8. Make sure the Team Account # listed is correct.
  9. Place your order by completing the top four items; action, number of contracts, commodity type and method. Use the drop-down menus.
     • WHEN PLACING A CASH ORDER BE SURE TO SELECT THE "COMMODITY CASH" LISTED UNDER COMMODITY TYPE. Example: if you are selling corn by the cash or forward contract method, select "corn cash" under Commodity Type.
  10. If you placed a futures order, continue placing your order under "Enters Futures Only" at the left.
  11. If you are placing an options order, continue under "Enter Options Only" at the right. Be sure to select a strike price under "Option Strike Prices" from the drop-down menu for your designated commodity.
  12. Review your order and make sure you have selected the correct data.
  13. Click on "Submit Order."
  14. A message will appear at the top of the page indicating if your order was submitted.
  15. Click on "Clear Order Blank" OR just start placing your next order to submit your next order.

• B. HOW TO ACCESS YOUR TEAM ACCOUNT STATEMENT
  1. Repeat steps 1-6 from above.
  2. Click on "View Your Statement."
  3. Click on "Run Statement."
  4. Your Team Account Statement will appear. It is sorted in chronological order by commodity.
  5. At the bottom of the statement is your current total of method points and market points.
  6. You may view your statement on-line or print it for your records.

• C. HOW TO ACCESS YOUR PROFIT & LOSS REPORT
  This report is only accessible AFTER the trading activity has ended.
  1. Repeat steps 1-6.
  2. Click on "View Your Statement."
  3. Click on "Profit and Loss Report."
  4. Your statement will appear. You may view on-line or print it for your records.

• D. PRIZE AWARDS:
  
  1. Cash prizes will be awarded to the top three teams with the highest total scores. A total score is the combination of market action points from trading and the final exam score. The trading portion is worth 54 and the final exam portion is worth 50 points, for a total possible score of 104.
  2. Prizes will be awarded in the amounts of $50, $75 and $100 to the top three participating teams nationally.