A farm that produces corn is looking to hedge their exposure to price fluctuations in the future. It is now May 15th and they expect their crop to be ready for harvest September 30th. You have gathered the following information: Bushels of corn they expect to produce 44,000 May 15th price per bushel $3.08 Sept 30 futures contract per bushel $3.22 Actual market price Sept 30 $3.37 Required (round to the nearest dollar): Calculate the gain or loss on the futures contract and net proceeds on the sale of the corn. Net gain or loss on future $Answer Sell the corn $Answer Net $Answer
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- A com processor will purchase 3 million bu. of corn in one month and hedges against price changes using the November contract. You know from historical data (tailing the hedge data) o,-0.0333, o,-0.0200, and p0.935. If needed, the futures price is $ 9.76 per bushel and the spot price is $ 9.4. How many contracts should be hedged?A grain farmer has 200,000 bushels of corn in storage as of November 1st. For various reasons this grain farmer does not wish to sell until next spring. This farmer is also concerned about the price of grain dropping between now and next spring. The basis next spring is estimated to be $.40 under. On November 1st May futures are $4.25. 1. What is the estimated price if this person hedges? 2. If this person hedges would they buy or sell contracts? 3. How many contracts would be needed to hedge the entire crop? Assume on November 1st this farmer hedges the entire crop using May futures. Next spring the CBOT contracts are offset at $4.05 and the actual corn is sold for $3.65 per bushel at the local elevator. 4 What was the actual outcome? s. What would the outcome have been without the hedge?Consider a farmer who plans to sell 6,000 bushels of corns on date T. The date-T spot price of corn is normally distributed with mean $500 per bushel and standard deviation $50 per bushel. To hedge the price risk, the farmer considers shorting corn futures with delivery on date T. The futures price is $480 per bushel, and one contract is to deliver 5,000 bushels. In addition, the farmer can take only integer number of contracts (i.e, a fraction of contract such as 0.1 is NOT allowed). (a) How may contracts does the farmer need to take? (b) What is the mean of the total revenue? (c) What is the standard deviation of the total revenue?
- A farmer agreed to sell corn in 6 months from now, at the spit price (S2) of that day. To reduce his price risk, he took a short position in the futures market for F1 = £10. What is the effective price he received if 6 months from now, F2 = £8 and S2 = £7as a soybean buyer, you are concerned about soy prices. Currently, they are at $60 per bushel .Therefore, you enter into the appropriate futures contract at the current spot price. What is your profit or loss, if six months later, soybean is selling at the spot market for 51 bushell? why?With a dry summer forecast, you expect that the soybean harvest will be smaller than normal and that soybean prices will rise. To speculate on this expectation, you buy 10 soybean futures contracts with a September maturity. The soybean futures price when you initiate the long position is $14.00 per bushel. By August the soybean futures price has risen to $16.00 per bushel. You execute an offset trade. What is your cumulative profit on the trades?
- please help with this question 10. A soybean farmer plans to sell a portion of their crop in October. To set up a short hedge, the farmer purchases a put option with a strike price of 750/bu. at a premium of 30/bushel. In October, the soybean cash price is 640/bu. and November soybean futures are trading at 655/bu. Fill in the table given here to describe the actions this farmer will take in the cash & futures exchange to hedge, the gain/loss the manufacturer will experience in these markets, and the net price that the manufacturer will receive for soybeans. Futures & Options Markets Purchase a put option Time Period Spot Market June No action Strike Price = 750/bu. Premium 30/bu. October Gain/Loss Net PriceHedge 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 ofIn January s of 2018, you took a short position on 100 Feeder Cattle futures contracts that matures in September 2018. The maintenance margin is 60% of the contract size (- 148.05 * 100* 60%) and if your margin goes below the maintenance margin you will get a margin call. Determine the following: 1) Based on futures prices in January 5. what is the market's expectation on future price movements of cattle spots? 2) Based on your position, are you a hodger or a speculator? 3) As of at the end of Apr 2018, is this position profitable? 4) Did you have any margin calls before the end of April? Futures Jaruary 5, 2018) in uS. Fed Cattle February 2018 April 2018 June 2018 August 2018 October 208 December 2018 Close 122.25 Change 0.00 108 Close 149.03 145.55 145.83 Change 343 333 315 Feeder Cattle January 2018 March 2018 April 2018 May 2018 August 2018 September 2018 12383 114.85 102 1173 130 145.48 3.30 112.95 115.08 173 145 148.48 148.05 2.40 2.18 Feeder Cattle Sot Price FER CA 120 an 27 A…
- In January 5th of 2018, you took a short position on 100 Feeder Cattle futures contracts that matures in September 2018. The maintenance margin is 60% of the contract size (= 148.05 * 100 * 60%) and if your margin goes below the maintenance margin you will get a margin call. Determine the following: 1) Based on futures prices in January 5th, what is the market’s expectation on future price movements of cattle spots? 2) Based on your position, are you a hedger or a speculator? 3) As of at the end of Apr 2018, is this position profitable? 4) Did you have any margin calls before the end of April?Given the following information, what would you expect to be the minimum price at which a 3 month futures contract for 100 bushels of wheat would be trading? The spot price of wheat is $8 per bushel. Storage and insurance costs for wheat are $.50 per 100 bushels, per month, payable at the end of the storage period. • You can borrow money at 8% per year. a) $865.50 b) $814.50 c) $816.50 d) $817.5The futures price of a commodity such as wheat is $2.50 a bushel. Futures contracts are for 10,000 bushels, and the margin requirement is $2,500 a contract. The maintenance market requirement is $1,000. A speculator expects the price of the commodity to rise and enters into a contract to buy wheat. d. If the futures price rises to $2.70, what must the speculator do? e. If the futures price continues to decline to $2.32, how much does the speculatorhave in the account?