A long hedge is a risk management strategy in which a company can lock in the price of the commodity that can be purchased in the future. Consider the case of Green Harvest Inc., a our manufacturer: In May, Green Harvest Inc. placed a long futures position to hedge against a possible increase in the price of wheat, a key raw material in the production of flour. Based on the selling price that Green Harvest earns from its customers, the maximum price that it can pay for wheat is $7.15 per bushel to break even. You also have the following information and assumptions: - The current spot price of wheat is $5.36 per bushel, and the September futures price of the commodity is $6.08 per bushel. - At $6.08 per bushel, the company will easily break even and make some prot, so it wants to lock in this purchase price for delivery in September. - wheat futures contracts trade in a standard size of 5,000 bushels. To meet its production requirements, Green Harvest buys 20 future contracts. In September, the spot price of wheat rose to $8.58 per bushel, and the price of wheat futures rose to $9.15 per bushel. Based on your understanding of the long hedge strategy, complete the transactions in the futures and cash markets. Futures Market Net gain or loss in the futures market: 0 $250,000 0 $608,000 0 $915,000 0 $143,000 Cash Market Net gain or loss in the cash market: 0 $353,000 Cash Market Net gain or loss in the cash market: 0 $853,000 0 $715,000 0 $307,000 0 $143,000 Thus, the gain and loss offset each other, and the company benets from placing the long hedge. The company earns a net prot of v and helps protect the producer to purchase a commodity against rising prices