2.2 (25 points) Suppose you perform risk management for a large feedlot in Western Kansas. Looking at the prices in the cattle and corn futures market you decide on December 1st, 2016 that you will buy 266 feeder cattle on December 20th, 2016 and feed them out to market weight when you will sell them to a packer on May 20, 2017. You need to hedge exposure to the price risk you face in feeding the steers to market weight. Assume you place the animals at 750 lbs. feed them a total of 10,000 bushels of corn (or approximately 38 bushels each) and market them at 1250 lbs. To make it simpler, assume there is no basis so cash prices are equal to the futures prices in table 1 Table 1. Cattle and Corn Futures Prices Live Cattle Corn Futures Feeder Cattle 12/1/2016 12/20/2016 5/20/2017 115.18 117.625 112.5 336 349.5 358 145.28 143.28 143.25 State the futures trades you will make to put on an 8-4-2 cattle crush spread and hedge this price risk. Note the contracts bought/sold, and the dates on which you buy/sell to open and sell/buy to close your futures positions. To make it simple, suppose you purchase all the cash corn required to feed out the animals on the same day you purchase the feeder calves in the cash market. a. 2.2 (25 points) Suppose you perform risk management for a large feedlot in Western Kansas. Looking at the prices in the cattle and corn futures market you decide on December 1st, 2016 that you will buy 266 feeder cattle on December 20th, 2016 and feed them out to market weight when you will sell them to a packer on May 20, 2017. You need to hedge exposure to the price risk you face in feeding the steers to market weight. Assume you place the animals at 750 lbs. feed them a total of 10,000 bushels of corn (or approximately 38 bushels each) and market them at 1250 lbs. To make it simpler, assume there is no basis so cash prices are equal to the futures prices in table 1 Table 1. Cattle and Corn Futures Prices Live Cattle Corn Futures Feeder Cattle 12/1/2016 12/20/2016 5/20/2017 115.18 117.625 112.5 336 349.5 358 145.28 143.28 143.25 State the futures trades you will make to put on an 8-4-2 cattle crush spread and hedge this price risk. Note the contracts bought/sold, and the dates on which you buy/sell to open and sell/buy to close your futures positions. To make it simple, suppose you purchase all the cash corn required to feed out the animals on the same day you purchase the feeder calves in the cash market. a