Melany Cruz Rodriguez
AG BM 460
October 31, 2012
Fleetwood Flour Mill
This particular case deals with the Fleetwood Flour Mill for F.M. Brown and Sons. The main part of the flour we will focus on is the procurement of soft red winter wheat, most commonly used in the eastern part of the United States for pastries, pretzels, pie crusts, and crackers. The yield of the establishment’s wheat is 75%, in other words 60 pounds of what (1 bushel) yields 45 pounds of flour. Due to certain events the price of wheat rose sharply in 2007, as have other commodities, such as corn, since that year. The rise in price is due to two main reasons including the drought in Australia and ethanol production in the United States. Since then, the price for wheat has dropped almost close to its original price to $4.00 per bushel. Competitive forces make it difficult for the company to change pretzel bag prices and so to mitigate price risk, Brian Conrad, who runs the Fleetwood Mill, will try his luck dealing with wheat futures contracts through the Chicago Board of Trade. For July 2013 Brian will strategize to forward contract with some farmers and hedge the rest on the Chicago Board of Trade. This report will specifically focus on wheat price analysis and the prices Brian should expect, with this in consideration what flour price he should quote to the pretzel company, a and lastly, advantages and disadvantages of contracting with area wheat farmers and hedging using futures contracts.