You are a wheat farmer with 2,000 acres of wheat and you expect an average yield...

 

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You are a wheat farmer with 2,000 acres of wheat and you expect an average yield of 57 bushels of wheat per acre. Suppose it is March and you plan to sell wheat to your local elevator in mid-June. The July Wheat futures price is $8.25 per bushel, and historic basis for wheat in your area in mid-June the past four years has been -$0.27, -$0.23, -$0.20, -$0.22. The local MFA is offering a forward contract for June delivery for $7.90 per bushel. Brokerage fees are $15 per contract, round-trip. In June, the July wheat futures contract is trading at $7.95 with a basis of -.25. Based on the information provided, what should you do? Forward Contract Hedge Answer these questions if you forward contract. 1. Why did you choose to forward contract? 2. What was the net revenue per bushel for your forward contract? Answer these questions if you hedge: 3. What type of hedge is this? Short Long 4. What is the revenue from the cash transaction? 5. What happened to basis? Weakened Strengthened Remained the Same 6. What was the total net gain/loss from trading in the futures? 7. What was the net price received per bushel in this scenario? You are a wheat farmer with 2,000 acres of wheat and you expect an average yield of 57 bushels of wheat per acre. Suppose it is March and you plan to sell wheat to your local elevator in mid-June. The July Wheat futures price is $8.25 per bushel, and historic basis for wheat in your area in mid-June the past four years has been -$0.27, -$0.23, -$0.20, -$0.22. The local MFA is offering a forward contract for June delivery for $7.90 per bushel. Brokerage fees are $15 per contract, round-trip. In June, the July wheat futures contract is trading at $7.95 with a basis of -.25. Based on the information provided, what should you do? Forward Contract Hedge Answer these questions if you forward contract. 1. Why did you choose to forward contract? 2. What was the net revenue per bushel for your forward contract? Answer these questions if you hedge: 3. What type of hedge is this? Short Long 4. What is the revenue from the cash transaction? 5. What happened to basis? Weakened Strengthened Remained the Same 6. What was the total net gain/loss from trading in the futures? 7. What was the net price received per bushel in this scenario?

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Based on the information provided what should you do Hedge Forward Contract Answer Based on the info... View the full answer