5. Hedging strategy to protect against rising prices Aa Aa A long hedge is a risk management strategy in which a company can lock in the price of the commodity that can be purchased in the future, Consider the case of Green Grains Inc., a flour manufacturer: In May, Green Grains Inc. placed a long futures position to hedge against a possible increase in the price of wheat, a key raw material in the production of flour. Based on the selling price that Green Grains earns from its customers, the maximum price that it can pay for wheat is $7.00 per bushel to break even. You also have the following information and assumptions: . The current spot price of wheat is $5.25 per bushel, and the September futures price of the commodity is $5.95 per bushel. At $5.95 per bushel, the company will easily break even and make some profit, so it wants to lock in this purchase price for delivery in September . Wheat futures contracts trade in a standard size of 5,000 bushels. To meet its production requirements, Green Grains buys 20 future contracts. In September, the spot price of wheat rose to $8.40 per bushel, and the price of wheat futures rose to $8.96 per bushel