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15. The reason that hedging with futures works is that the cash price tends to be less/more variable than the basis. Suppose you plan to
15. The reason that hedging with futures works is that the cash price tends to be less/more variable than the basis. Suppose you plan to buy corn in the cash market in November and store it to sell in June. the November casa price is $3.40 (all prices are per bushel) the June 1 cash turns out to be $3.50. The July futures is selling for 33.80 on November 1, while its price on June 1st is $3.60. Please show your calculations for the next 100 questions. 16. What would the return be if only the cash market is used? 17. What would the return be if a carrying-charge hedge were used? 18. What are the beginning and ending bases? 19. Did the basis widen or narrow? By how much? 20. You produce corn, if when you plant in May you short hedge your corn with December futures, the hedge price you receive is made up of what two factors and when do you know them? 21. Because of the potential to deliver on futures contracts, the cash and futures prices tend to converge in the delivery month. What forces usually cause this to happen? 77 If there is an expected return to storage, how would you expect the futures prices for March, May, and July 19. Did the basis widen or narrow? By how much? 20. You produce corn, if when you plant in May you short hedge your corn with December futures, the hedge price you receive is made up of what two factors and when do you know them? 21. Because of the potential to deliver on futures contracts, the cash and futures prices tend to converge in the delivery month. What forces usually cause this to happen? 22. If there is an expected return to storage, how would you expect the futures prices for March, May, and July 2018 to align? 23. Name two disadvantages to hedging with futures for a producer. 24. A processor hedge is a hedge. minus the ending 25. If a producer hedges corn at planting, his/her price will be the futures price at basis
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