Question 6 (6 points): Hedge March 15th: A packer needs to buy Live Cattle in early June. Currently the June Live Cattle (LC) futures are trading at $175.650/cwt. The expected basis is $1.50/cwt. • Does the packer have a long or short cash position?. • Does the packer have a long or short futures position? (buy/sell) June LC futures at • • To hedge: The packer will $175.650/cwt. What is the expected price? June 10th. • The packer must. (buy/sell) cattle locally in the cash market at • $185.025/cwt. To offset their future position, they must $183.00/cwt. What is the actual basis? What is the realized price for the producer? o Method 1: o Method 2: ○ The hedge resulted in a realized price of (buy/sell) June futures at
Question 6 (6 points): Hedge March 15th: A packer needs to buy Live Cattle in early June. Currently the June Live Cattle (LC) futures are trading at $175.650/cwt. The expected basis is $1.50/cwt. • Does the packer have a long or short cash position?. • Does the packer have a long or short futures position? (buy/sell) June LC futures at • • To hedge: The packer will $175.650/cwt. What is the expected price? June 10th. • The packer must. (buy/sell) cattle locally in the cash market at • $185.025/cwt. To offset their future position, they must $183.00/cwt. What is the actual basis? What is the realized price for the producer? o Method 1: o Method 2: ○ The hedge resulted in a realized price of (buy/sell) June futures at
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 6 (6 points): Hedge
March 15th: A packer needs to buy Live Cattle in early June. Currently the June Live Cattle
(LC) futures are trading at $175.650/cwt. The expected basis is $1.50/cwt.
• Does the packer have a long or short cash position?.
•
Does the packer have a long or short futures position?
(buy/sell) June LC futures at
•
•
To hedge: The packer will
$175.650/cwt.
What is the expected price?
June 10th.
•
The packer must.
(buy/sell) cattle locally in the cash market at
•
$185.025/cwt.
To offset their future position, they must
$183.00/cwt.
What is the actual basis?
What is the realized price for the producer?
o Method 1:
o Method 2:
○
The hedge resulted in a realized price of
(buy/sell) June futures at
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