On March 31, 2021, a farmer knows he will need to sell 15,000 bushels of wheat some
Question:
On March 31, 2021, a farmer knows he will need to sell 15,000 bushels of wheat some time in October 2021. The November wheat futures price is 778.3 cents per bushel. Each wheat futures contract is on 5,000 bushels. His hedging strategy is as follows: 1. Short 3 November wheat futures contracts on March 31, 2021 at the futures price of 778.3 cents per bushel. 2. Close out the position when the farmer sells the wheat Suppose the farmer sells the wheat on October 18th when the spot price of wheat is 727.1 cents per bushel and the November futures price is 765.5 cents per bushel. What is the farmers effective proceeds from selling the wheat? (The final value should be in dollars)
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon