3. Futures A soybean farmer expects to harvest 50,000 bushels in November this year. Due the volatile markets, he is worried about the soybean price uctuation. As a result, he wants to hedge his position by entering a futures contract. Soybean futures are currently posted at: I Expiration I Price I November 2021 1196 cent/bu January 2022 1254 cent/bu March 2022 1398 cent/ bu Prices are in 11.3. cents per bushel, and soybean contract size is 5,000 bushels. 1. Should he enter long or short position? If he wants to fully hedge, how many futures oontracts does he buy or sell? 2. Let's fast forward to November, the actual spot price turns out to be 1251. Assuming he entered the contract expiring in November, compute his prot or loss. 3. Suppose the farmer could actually store the soybeans at a cost of $1,200 per month and sell them later either in Januaryr or March 2022. Assume all the soybeans are harvested at the end of October, and storage costs are paid at the end of each month. Should he consider storing the harvest and execute the trade in January or March? 2 (The rent is payed at the end of each month. In case of January expiration, he would need to pay rent for 3 months. In case of March erpimtz'on, he would pay rent for 5 months.) 4. Instead of futures, the farmer could also enter the option contact. Which option contract should help the farmers to hedge against the price risk? Call or put? Buy or sell? Given that options carry a non-zero premium, should he enter the option when the strike price is above or below the price of the future contract? Explain your reasoning