$(1$ pt$)$ Based on the numbers you have calculated above, is a stronger or weaker basis more

beneficial to the short hedger? To the long hedger? Why?

$(1$ pt$)$ Which has more of an impact on the net hedge price for the portion of production that

is hedged, price level or basis level?

$(8$pts$)$ Calculate the margin paid by each producer or to each producer if based on the

following hedging results. Think about the first action taken for each hedge, buy or sell, and

how that can result in a profit or loss from in their margin account. Think: sell high, buy low.

Farmer Smith Beginning Hedge Prices Short

Futures $4\mathrm{.}80$

Basis $-20$ cents

Expected Cash $4\mathrm{.}60$

Ending hedge prices

Cash$/$Futures Sell @ Buy @ # of bu$.$ per contract Margin $($gain$/$loss$)$

a$)$ $$\frac{4\mathrm{.}40}{4\mathrm{.}60}=>$

b$)$ $$\frac{5\mathrm{.}60}{6\mathrm{.}00}=>$

Farmer Jones Beginning Hedge Prices long

Futures $4\mathrm{.}80$

Basis $-20$ cents

Expected Cash $4\mathrm{.}60$

Ending hedge prices

Cash$/$Futures Sell @ Buy @ # of bu$.$ per contract Margin $($gain$/$loss$)$

c$)$ $$\frac{5\mathrm{.}20}{4\mathrm{.}80}=>$

d$)$ $$\frac{4\mathrm{.}80}{5\mathrm{.}00}=>$

e$)(1$ pt$)$ Does the ending cash price and$/$or basis have any impact on amount of margin paid or

received? Why or why not?

f$)(1$ pt$)$ If you have half of your production$/$needs hedged, and the other half is left on the cash

market, are margin calls a good thing or a bad thing?