Question
1. What price would a feedlot operator located near Utah plan to spend on corn he will be buying in the local cash market on
1. What price would a feedlot operator located near Utah plan to spend on corn he will be buying in the local cash market on March 1, 2022 if he hedges the corn on August 11, 2021 and the expected basis for March 1 is $0.12 over per bushel?
2. Assume the same buyer as in question 1 and that storage cost for corn between August 11, 2021 and March 1, 2022 is $0.15/bu. What would his net purchase price (cost) for the corn be if:
- He bought the physical corn on 8/11/21 in the cash market when the local cash price was $5.77/bu.?
- He hedged (long position) the corn on 8/11/21 and then offsets the contract on 03/01/22 when local cash price is $5.92/bu. and the March Corn futures price is $5.82/bu.?
- He waited to purchase the corn on 03/01/22 when the basis was $0.10 over per bushel and the futures price was $5.77/bu.?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Finance And Occupational Pensions
Authors: Charles Sutcliffe
1st Edition
1349948624, 978-1349948628
