3. Over-Hedging Speculation. A farmer planted corn in late April and a month later decides to use the future's market to hedge 15,000 bushels, and sells three December Future's contracts for $4.00/bu. They planted 100 acres and expect a yield between 100-200 bu/acre. a) Yields ended up being 100 bu/acre. Determine how much grain was hedged by the future's contracts and how much grain was actually produced. The excess grain that is not back-up by the future's contract is what was over-hedged. In essence, the farmers is doing what with this portion of the future's contract? 100 bu/acre * 100 acres = 10,000 bu. They are over-hedged and there is still 5,000 bu left. This portion of the contract could be sold or bought b) Future's and Cash Price Fall: At harvest, the future's price was $3.75/by and the cash price was $3.50/bu. Determine the overall value of this grain (bu x net price) for the hedged and Over-hedged portions. Add the overall value together and then divide by the total harvest bushels to get an average net selling price per bu. Hint: the Over-hedged portion will just be the gain loss from the future's for that portion not backed up with cash sales. 1 c) Future's and Cash Price Rise: At harvest, the future's price was $4.25/bu and the cash price was $4.00/bu. Determine the overall value of this grain (bu x net price) for the hedged and Over-hedged portions. Add the overall value together and then divide by the total harvest bushels to get an average net selling price per bu