Download Dr. Sean Hurley

Activity 10
AGB 421
Dr. Sean Hurley
200 Points
Due: 6/2/09
Learning Objectives
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To learn how to simulate a business environment using Excel
To pull together data from many different sources to create a business model
To do research to find needed information
To understand using the Rand() function in Excel
Introduction:
Today’s activity will familiarize you with using Excel’s ability to assist in simulating a business
environment to develop strategies for producing. You will be required to gather and analyze data from
a USDA website and the UC Davis cost studies website. To get full credit, you need to submit any
spreadsheet you created and any write-up should be in a text box in Excel.
Suppose you have been hired by an overseas investor who would like to start a farming operation in the
Imperial Valley. This investor would like your advice as to what would be the proper crop mix to grow
on her three thousand acres of land she purchased in Brawley, CA. This producer has experience
growing Durum Wheat, Upland Cotton, and Sugar Beets. It is your job to examine an optimal strategy
regarding how much of each she should plant to be long-run profitable. To do this analysis, the investor
would like you to take into account both price and yield risk. You have decided that the best way to
examine this issue is to simulate the business environment and explore different scenarios.
To start your analysis, you need to find information regarding prices and yields of Upland Cotton, Sugar
Beets, and Durum Wheat . One location of this information is at: http://www.nass.usda.gov/. On this
site, you should be able to find information regarding apple prices on the US and State Data pull down
menu. The information you are interested in is on the US & States – Crops under the Planted,
Harvested, Yield, Production, Price, (MYA), Value of Production Scroll Down Menu. Make sure you
gather information for California only and that you examine state numbers rather than county numbers.
Copy each set of data into a worksheet that has the title of the crop. (10 Points)
In a new a new worksheet entitled All Crops, copy and paste each crop into it. Next delete all columns
that have the following titles: Commodity_Code, State, StFips, Planted All Purpose, Planted All
Purpose(Unit), Harvested, Harvested(Unit), Value of production, Value of Production(Unit). (10 Points)
In your Crops worksheet, you need to associate each column with the crop it is related to and the units it
is related to. An example of one of the title headings is “Wheat Durum-Yield-bushels”. Once you have
all of the columns changed, delete the columns entitled Commodity and any column that has (Unit) in it
because these are no longer needed. (10 Points)
Next, you want to get the years of each crop to align with each other. Move the data around to
accomplish this task. After the crops are aligned for each year, you should delete the columns for
Cotton Upland-Year and Wheat Durum-Year. Finally, call your Sugar Beet-Year column Year. Delete the
row related to year 2009 since you do not have data for each crop in that year. (10 Points)
In a new worksheet entitled Value of production, copy and paste the data from your Crops worksheet.
In your analysis, exclude all years that you cannot calculate a value of production. Calculate the value
per acre per year for all three crops. Next run a correlation on the three crop values per acre. (Note: if
you used a filter to get the data you are analyzing, you may find that the correlation option in the Data
Analysis Tool may not calculate the correct correlations. Please explain your results in a text box. (20
Points)
In your worksheet entitled Value of Production, create a set of descriptive statistics for each of the
crops. Also make a scatter plot that has years on the horizontal axis and value of production for each
crop on the vertical axis. In a textbox, explain you results. (20 Points)
Create a set of descriptive statistics for each of your columns (except Year) on your Crops worksheet.
Since you only have price data from 1978 to 2007, make sure you run your statistics based on these
years. (10 Points)
Now that you have a better idea of your yield and price data which will allow you to get at the revenue
for each crop, you want to collect information on costs related to each crop. You will find this
information located at http://coststudies.ucdavis.edu/current.php. You want the data related to
Imperial Valley Wheat by flood irrigation, Imperial Valley Cotton, and Imperial Valley Sugar Beets. The
information that is of interest to you is the Cost per Acre-Output worksheets. Copy and paste this
information into worksheets entitled Wheat Cost, Cotton Cost, and Sugar Beet Cost. (10 Points)
Create a new worksheet entitled Farm Profits. In this worksheet, title you first column Model Inputs and
your second column should be Value. In the first column, put Acres to Cotton, Acres to Wheat, Acres to
Sugar Beets, Average Price of Cotton, Average Price of Wheat, Average Price of Sugar Beets, Standard
Deviation of Price for Cotton, Standard Deviation of Price for Wheat, Standard Deviation of Price for
Sugar Beets, Average Quantity of Cotton, Average Quantity of Wheat, Average Quantity of Sugar Beets,
Standard Deviation of Quantity for Cotton, Standard Deviation of Quantity for Wheat, Standard
Deviation of Quantity for Sugar Beets, Cost to Produce Cotton, Cost to Produce Wheat, and Cost to
Produce Sugar Beets in the rows below the title. (20 Points)
In the Value column, put 1000 next to each of the following: Acres to Cotton, Acres to Wheat, and Acres
to Sugar Beets. Next take information from your Descriptive Statistics that you got from your Crops
worksheet and information you have in your Cost worksheets and propagate the following items:
Average Price of Wheat, Average Price of Sugar Beets, Standard Deviation of Price for Cotton, Standard
Deviation of Price for Wheat, Standard Deviation of Price for Sugar Beets, Average Quantity of Cotton,
Average Quantity of Wheat, Average Quantity of Sugar Beets, Standard Deviation of Quantity for Cotton,
Standard Deviation of Quantity for Wheat, Standard Deviation of Quantity for Sugar Beets, Cost to
Produce Cotton, Cost to Produce Wheat, and Cost to Produce Sugar Beets. Name the value in each cell
the corresponding name in Column A. (20 Points)
Your next goal is to create price and quantity columns for each crop. The prices and quantities need to
be random draws from the normal distribution using the averages and standard deviations for each
crop. You can do this by using the Norminv() function in Excel. Create 10,000 of each of these. (10
Points)
Next calculate the revenue and profit for each crop for each random draw of prices and quantities. You
need to incorporate the acreages that you will be initially allocating to each crop, i.e., 1000 each. Create
a summary of the average profits for each of the crops and show the results summarized in column A
underneath your other model inputs. Please summarize your results in a text box. (20 Points)
You should notice that none of your crops are profitable. The primary reason is that you have not
adjusted your prices for inflation. Since you do not have easily accessible price deflators to deal with the
issue of inflation, you decide to examine the last ten years of data rather than the last thirty years.
Change your model to deal with this new situation. Under this new situation, see if you can figure out
an optimal allocation of acreages to your different crops. Do this for your maximum prices and
quantities using the original standard deviations for each. You should use Scenario Manger to assist
with this analysis. (20 Points)
In a text box, summarize your new results and what you have found. One point will be deducted for
each spelling and each grammatical error. (10 Points)