Today – In looking at the current futures market, feeder cattle prices appear to be high. We have a set of calves being prepared for the market and they will be ready for the feeder market to be sold at the end of October. Today is September and we are concerned for the price to decline. Today, a November Feeder Futures contract is $169.78 per cwt. Cash prices in Amarillo are at $160 per cwt. As a hedger how would you begin the hedge in September to protect your cash position?

Set up the hedge and show dates, markets, prices, futures position, and basis:

Add this to the table you have made on the hedge. As time moves on, when we get to the end of October…the following is the potential outcomes in the market. The cash market has a flood of animals on feed and prices have declined to $135 per cwt for cash price. The November Futures contract is now trading at $139.78. Using a completed hedge, add your work to the table (beg and end) and show how:

1. What is the change in basis

2. What is the price of selling cattle in the cash market

3. What is the net trade in the futures market

4. What is the overall net price for cattle sold

Answer rating: 100% (QA)

Date Market Price Futures Position Basis September Cash 160cwt NA NA November Futures 16978cwt Long NA To set up the hedge as a producer who is worrie... View the full answer