A. Complete the t-table based on the provided information above.

B. Calculate the net price below

Cash receipts = $_______/bu. X __________? bushels = $_______

Futures Receipts = Gain/Loss $_____/bu. X ____________bushels = $________

Total returns = cash receipts + futures receipts = $_____________

Net price/bushel = total returns / bushes = $________/bu

Total costs = $_____/acre X ______acres = $_________

Cost/bushel = total costs / bushels = $___________

Profit or loss per bushel = $________/bu

C. Why were the net price and the forward price not equal even though the basis was correctly estimated?

D. What does this suggest in terms of how much of a growing crop to hedge when yield is uncertain? Is this issue relevant for a storage hedge? Is this issue relevant for a livestock hedge? Explain why.

E. A more realistic result would be that actual basis is stronger than expected during a drought year. Write a couple of sentences below and tell me why. (This is a trick question.)

F. Suppose basis was 20 cents per bushel narrower than expected at harvest, recalculate the net price

Cash receipts = $_______/bu. X __________? bushels = $_______

Futures Receipts = Gain/Loss $_____/bu. X ____________bushels = $________

Total returns = cash receipts + futures receipts = $_____________

Net price/bushel = total returns / bushes = $________/bu

Total costs = $_____/acre X ______acres = $_________

Cost/bushel = total costs / bushels = $___________

Profit or loss per bushel = $________/bu

G. Did the basis error hurt or help your net price given the reduced yield? By much?

Assume you are a wheat producer in eastern Colorado. You have 3200 acres (or 5 sections) in production and your potential yield (based on a trend-yield projection) is 37.5 bushels per acre. Production costs are S130 per acre It is currently December 1, 2016. You are considering hedging some of the wheat crop which you will market at harvest in early-July or which you will store until early-October. If you store the grain, you will only do so until October because you will need the cash flow to meet a production operating note payment. We will use the basis information that is close to what was constructed from Problem Set 1. You have made a small basis table and include the basis information for the relevant months. Average:s and standard deviations are reported below Potential Futures Contracts Calendar Month MAR MAY JUL SEP DEC 0.55 (0.49) -0.66 (0.59) Harvest Transaction Month Jul Storage Transaction Month October -0.94 (0.54) 0.93 (0.51) 0.83 (0.52)