Barbara Bean lives in Central Michigan and produces soybeans. Barb is trying to decide how to hedge her farm's soybean sales for January 2020. Barb could use Chicago Futures. The spot price of soybeans in Chicago is currently $8.14/bu. Cost of carry equals $0.01 per bu per day and is expected to stay the same between now and the January expiration date. Due to this year's large soybean crop and trade frictions with foreign buyers of soybeans convenience yield is estimated to be a very low at $0.001 per bu per day. The January contract expires in 60 days. 

What should the futures price be today for the Chicago January futures contract? Explain to Barb what a speculator would do, hypothetically, if the futures price was either too high or too low. What should the March futures price be assuming expected COC is the same between January and March as it is today, but convenience yield is expected to increase a little to $0.0015 per bu per day (cell not provided just plug the number into the formula)?

Answer rating: 100% (QA)

To determine the futures price for the Chicago January futures contract we can use the cost of carry ... View the full answer