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Cattle Trading Alternatives

1) Makecashcommitment

2) Sell futures

3) Buy put option

4) Current cash market situation

5) Current futures market situation

6) Current options market situation

7) Summary of current situation --
cash, futures and options

8) Return to market action screen

9) End game

Press number to choose desired option.

Wheat Trading Alternatives

1) Place hedge by selling futures

2) Buy put option

3) Look at current cash situation

4) Look at current hedging situation

5) Look at current options situation

6) Look at summary of current position

7) Return to market action screen

8) End game -- sell cash wheat
and close out all contracts

Press number to choose desired option.

Figure 2. Trading Alternatives Menu

players can make purchasing, selling, and
hedging decisions. But perhaps more impor-
tantly from a learning standpoint, they can
access analyses of the current situation (i.e.,
what minimum price could be guaranteed with
a put option, what price can be “locked in”
with a hedge, what is the current expected
breakeven price, etc.). A description of each of
these analysis options cannot be presented in
detail here. Each was designed to show
players all the values used in making the
calculations (except in the case of the
breakeven price) so they could repeat them
with paper and pencil in actual application.
Estimated breakeven prices are determined
at the time of cash purchase of the commodity
in question and are known to players before
they make their cash purchase. In the case of
wheat, which is owned at the outset of the
game, the breakeven price is established
automatically at the beginning of the game.
Computationally, the breakeven prices are
drawn from a random distribution with an ex-
pected value about five percent above the cur-
rent futures price. This fact is unknown to the
player. The net result is that unless a
favorable price trend emerges or a well-timed
hedge is placed, the player will generally lose
money. Again this was the reality deemed ap-
propriate in the design of the game.

From an educational viewpoint, the most
informative of the menu items available is the
one titled “Look at Summary of Current Posi-
tion.” This option shows players their current
profit situation and game points. But it also
shows them what their net profit situation
would have been if they had followed several
other marketing alternatives available to
them. The summary screen simultaneously
shows the net profit position of three
marketing alternatives. The first alternative
displayed shows the consequences of the buy-
ing and selling decisions made assuming no
hedging is done. The second and third alter-
natives show the consequences of any futures
or options hedging done. For the sake of com-
parison whenever an options or futures hedge
is implemented, the other is also assumed to
have been implemented. Thus, for example, a
futures hedger can see what would have hap-
pened if an options hedge had been used in-
stead or what would have happened if no
hedge had been used.

Termination of the Game

Termination of the game is either automatic
at the end of the 85 day trading period or at
the player’s choice. In the case of cattle, the
player cannot choose to sell cattle and ter-
minate the game until the last 10 days of
simulation. As previously stated, this is in-
tended to represent the fact that cattle cannot
be sold until they have reached slaughter
weight. Wheat in storage on the other hand
can be sold at any time. The purpose of allow-
ing players to terminate play on their own
choice is to teach them to use the available
basis and outlook information to select a
favorable time to sell and lift their hedge.
Again information to aid in this decision is
available in the alternatives menu.

In many games, players will have made all
of their marketing decisions with regard to
hedging, buying a put option, etc. in the first
few days of the game. At this point all that re-
mains is to wait for the appropriate date to
closeout their position. In the case of the cat-
tle game, players cannot closeout their posi-
tion until the last 10 trading days when cattle
have hypothetically reached market weight.
Players may proceed through the game in one-

144




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