2. 7.

Hedging with futures [LO 23.2] Suppose today is 10 February 2020, and your firm produces breakfast cereal and needs 145 000 bushels of corn in May 2020 for an upcoming promotion. You would like to lock in your costs today because you are concerned that corn prices might rise between now and May.

1. How could you use corn futures contracts to hedge your risk exposure? Each contract is for 5 000 bushels.

2. Suppose corn prices have gone over the locked in price per bushel in May. Explain how your futures position would have eliminated your exposure to price risk in the corn market.