Hedge May 20th: Producer plans to sell corn in early November. Currently the December corn futures are trading at $4.33. The expected basis is -$0.36. • Does the producer have a long or short cash position? long • To hedge: The producer will sell (buy/sell) Dec corn futures at $4.33/bu. • What is the expected price? $3.97 per bushel Nov. 10th: • The producer must sell (buy/sell) corn locally in the cash market at • . $4.18/bu. To offset their future position, they must buy $4.67/bu. What is the actual basis? -se.49 per bushel · (buy/sell) Dec futures at I What is the realized price for the producer? $3.84 per bushel о Method 1: o Method 2: о The hedge resulted in a realized price of
Hedge May 20th: Producer plans to sell corn in early November. Currently the December corn futures are trading at $4.33. The expected basis is -$0.36. • Does the producer have a long or short cash position? long • To hedge: The producer will sell (buy/sell) Dec corn futures at $4.33/bu. • What is the expected price? $3.97 per bushel Nov. 10th: • The producer must sell (buy/sell) corn locally in the cash market at • . $4.18/bu. To offset their future position, they must buy $4.67/bu. What is the actual basis? -se.49 per bushel · (buy/sell) Dec futures at I What is the realized price for the producer? $3.84 per bushel о Method 1: o Method 2: о The hedge resulted in a realized price of
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Hedge
May 20th: Producer plans to sell corn in early November. Currently the December corn
futures are trading at $4.33. The expected basis is -$0.36.
•
Does the producer have a long or short cash position? long
•
To hedge: The producer will sell
(buy/sell) Dec corn futures at $4.33/bu.
•
What is the expected price? $3.97 per bushel
Nov. 10th:
•
The producer must sell
(buy/sell) corn locally in the cash market at
•
.
$4.18/bu.
To offset their future position, they must buy
$4.67/bu.
What is the actual basis? -se.49 per bushel
·
(buy/sell) Dec futures at
I
What is the realized price for the producer?
$3.84 per bushel
о
Method 1:
o Method 2:
о
The hedge resulted in a realized price of
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