Question $1(5$ points$)$: Fill in the blanks: Hedge: October $155^{th}$ : A producer plans to sell wheat in early July; currently, July wheat

futures are trading at ${671}^{\text{'}}6.$ The expected basis is $$0\mathrm{.}65$ under.

Does the producer have a long or short cash position?

Does the producer have a long or short futures position?

To hedge: The producer will

$($buy$/$sell$)$ July wheat futures at ${671}^{\text{'}}6$

per bushel.

What is the expected cash price?

July $1^{st\text{:}}$

The producer must

$($buy$/$sell$)$ wheat locally in the cash market at $562,2$

per bushel.

To offset their future position, they must

$($buy$/$sell$)$ July futures at

$599\text{'}4$ per bushel.

What is the actual basis?

Was the basis stronger, weaker, or the same as expected?

What is the realized price for the producer?

Method $1$:

Method $2$: Hedge: $-$ January $20$ th: Miller needs to buy wheat in late April. Currently, the May wheat

futures are trading at $$6\mathrm{.}47.$ The expected basis is $-$$$0\mathrm{.}35.$

Does the miller have a long or short cash position?

Does the miller have a long or short futures position?

To hedge: The miller will

$($buy$/$sell$)$ May wheat futures at $$\frac{6\mathrm{.}47}{b}u.$

What is the expected price?

April $30$ th:

The miller must

$($buy$/$sell$)$ wheat locally in the cash market at $$\frac{7\mathrm{.}89}{?}$ bu$.$

To offset their future position, they must

$($buy$/$sell$)$ May futures at

$$\frac{8\mathrm{.}04}{b}u.$

What is the actual basis?

What is the realized price for the producer?

Method $1$:

Method $2$:

Question $2(4$ points$)$: Stronger versus weaker basis

A stronger basis means that the local cash price is $($relatively$)$ stronger. The realized price is

above the expected price. $($Insert "helps" or "hurts" below$)$

Stronger basis the short hedger.

Stronger basis the long hedger.

A weaker basis means that the local cash price is $($relatively$)$ weaker. The realized price is

below the expected price.

Weaker basis

the short hedger.

Weaker basis

the long hedger.