Dice Game for Grain Marketing Workshop

Dice Game

This game is a simplified illustration of how a market outlook can change over the course of the crop year. During the crop year, by rolling the dice, the weather can change, which in turn may or may not have an affect on the crop yield and harvest price of grain. Ultimately, rolling the dice will determine the weather, yield and the final price for the crop produced.

Participants are asked at different times of the crop year whether or not they would like to sell grain at select prices. The prices available are determined when participants roll dice.

How the game works

The rules of the game are:

1- Divide the group into teams. Make sure each team has someone to keep track of how much each team sells and the price they sell at.

2- Each team has 200 acres corn and expects to achieve a yield of 120 bushels per acre.

3- Each team has three marketing dates:

January 15 May 15 Harvest on November 15

4- Players can accept forward cash contracts in January and May.

In January, you can price to receive $2.50 per bushel on:

 No production  1/3 of expected production (8,000 bu.)  2/3 of expected production (16,000 bu)  All of expected production (24,000 bu)

In May, you can price:

 No production  1/3 of expected production (8,000 bu.)  2/3 of expected production (16,000 bu)  All of expected production (24,000 bu)

Note: January + May cannot exceed 24,000 bushels.

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Starting the game:

Play the game once per day over the three day period. Contract for January on the first day. On the second day, determine the cropping season outlook and forward contract price for the month of May. Finally, finish the marketing game on the final day of class.

To Begin:

It is January 15, participants have the opportunity to forward contract grain at $2.50 per bushel. They can lock in that price for none, 1/3, 2/3, or all of expected production. Have the teams record how much was sold at that price.

Now assume it is May 15. Roll one dice to determine the weather for the planting season (exceptional, normal or drought). A 1 or 2 is an exceptional planting season. A 3 or 4 results in a normal price distribution. A 5 or 6 indicates a drought year. The forward contract price for the month of May is the mean of the determined (by roll of the dice) cropping season. The price is taken from the bar chart of the selected cropping distribution. For example, the forward contract price for May when a 5 or 6 is rolled (drought) will be $2.80.

At this time, the teams can contract none, 1/3, 2/3, or all of the expected production at the offered forward contracted price. But, the total amount contracted between January and May cannot exceed 24,000 bushel.

Have members of each team record the amount contracted and the price at which they contracted.

Move ahead to November. The dice are rolled twice in November. The first time they are rolled to determine the actual market price of the grain. The second time they are rolled to determine the final yield of the crop.

Role two dice to determine actual market price at harvest from the distribution identified in May. The actual market price is determined by adding the total of the two dice together. The roll of the dice corresponds with a bar on the predetermined distribution found in May. A 2 is the price on the far left bar and a 12 will be the price on the farthest bar on the right. This will be the final price for the crop year

Finally, roll two dice to determine the actual yield of for the crop year. The total of the 2 dice will correspond with a bar on the Corn Yield Distribution chart. This will be the actual grain yield for the crop year.

Make sure someone on each team is recording the action taken in November.

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Determine final revenue for each team:

Final revenue is equal to:  Amount contracted in January times $2.50 per bushel  Plus, amount contracted in May times contracted price  Plus, any un-priced corn times the harvest price  MINUS the price of contracted grain which cannot be delivered plus an additional 10 percent non-delivery penalty.

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