• You negotiate a sale with a mill in which you sell them wheat picked up at your elevator in January at a basis of +30 MAR It is currently June (pre-harvest) and you have no ownership of wheat at this time. Having made this sale without owning wheat, which of these circumstances would be your best alternative to complete this short-the-basis transaction? Forward contract wheat pre-harvest from producers for January delivery at -20 MAR and incur no cost-of-carry. Purchase wheat during harvest at -20 SEP. Spread short SEP futures to MAR at 30¢ carry. Carry wheat until January and incur 25¢ cost-of-carry. Pre-spread your purchase of wheat from SEP/MAR at 40¢ carry. Forward contract wheat from producers for harvest delivery at -30 SEP. Carry the wheat until January and incur 25¢ cost-of-carry. Wait and purchase wheat in Jan/Feb at +20 MAR and incur no cost-of-carry.
• You negotiate a sale with a mill in which you sell them wheat picked up at your elevator in January at a basis of +30 MAR It is currently June (pre-harvest) and you have no ownership of wheat at this time. Having made this sale without owning wheat, which of these circumstances would be your best alternative to complete this short-the-basis transaction? Forward contract wheat pre-harvest from producers for January delivery at -20 MAR and incur no cost-of-carry. Purchase wheat during harvest at -20 SEP. Spread short SEP futures to MAR at 30¢ carry. Carry wheat until January and incur 25¢ cost-of-carry. Pre-spread your purchase of wheat from SEP/MAR at 40¢ carry. Forward contract wheat from producers for harvest delivery at -30 SEP. Carry the wheat until January and incur 25¢ cost-of-carry. Wait and purchase wheat in Jan/Feb at +20 MAR and incur no cost-of-carry.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:• You negotiate a sale with a mill in which you sell them wheat picked up at your elevator in January at a basis of +30 MAR
It is currently June (pre-harvest) and you have no ownership of wheat at this time.
Having made this sale without owning wheat, which of these circumstances would be your best alternative to complete this
short-the-basis transaction?
Forward contract wheat pre-harvest from producers for January delivery at -20 MAR and incur no cost-of-carry.
Purchase wheat during harvest at -20 SEP. Spread short SEP futures to MAR at 30¢ carry. Carry wheat until January
and incur 25¢ cost-of-carry.
Pre-spread your purchase of wheat from SEP/MAR at 40¢ carry. Forward contract wheat from producers for harvest
delivery at -30 SEP. Carry the wheat until January and incur 25¢ cost-of-carry.
Wait and purchase wheat in Jan/Feb at +20 MAR and incur no cost-of-carry.
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