Hedging with Futures Suppose today is 16 April, and your firm produces chocolate and needs 75,000 tonnes of cocoa in July for an upcoming promotion. You would like to lock in your costs today because you are concerned that cocoa prices might go up between now and June. The closing price for July futures is £1,468 per tone of cocoa.

How could you use cocoa futures contracts to hedge your risk exposure? Suppose cocoa prices are £1,500 per contract in July. What is the profit or loss on your futures position? Explain how your futures position has eliminated your exposure to price risk in the cocoa market.