Assume you are a wheat producer in eastern Colorado. It is September 2019. You are developing the hedging part of your marketing plan. To answer this you need basis information. You want to be able to hedge some of the wheat crop which you will market at harvest in July and you want to be able to hedge any grain placed in storage until October. If you store grain, you will only do so until October because you need the cash flow to meet a production operating note payment. Use the cash and futures prices in the spreadsheet on the class web site. You will calculate basis in this first problem set and use it to work hedges in the second problem set. A. You want to evaluate the two futures contracts for your production hedge which expire closest to but not before harvest. You need basis information for both contracts because you will evaluate both in the next problem set.

Which two contracts could be used for the production hedge? (Do not worry about holding the contract into the delivery month.)

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Answer Generally you would look for contracts that expire closest to the harvest but not sooner in o... View the full answer