Question $3(6\mathrm{.}5$ points$)$: Hedge

October $15$th: A producer plans to sell wheat in early July; currently, July wheat futures are

trading at $6806.$ The expected basis is $$0\mathrm{.}60$ 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 $6806$

per bushel.

$$ What is the expected cash price? $\_\_\_\_\_\_\_\_\_\_\_$

July $1$st:

$$ The producer must $\_\_\_\_\_\_\_\_\_\_\_($buy$/$sell$)$ wheat locally in the cash market at $5622$

per bushel.

$$ To offset their future position, they must $\_\_\_\_\_\_\_\_\_\_\_($buy$/$sell$)$ July futures at

$5994$ per bushel.

$$ What is the actual basis? $\_\_\_\_\_\_\_\_\_\_\_$

o Was the basis stronger, weaker, or the same as expected? $\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

$$ What is the realized price for the producer?

o Method $1$:

o Method $2$:

o The hedge resulted in a realized price of $\_\_\_\_\_\_\_\_\_\_\_.$