Question
A farm expects to harvest 30,000 bushels of corn in November. It decides to use the December contract for hedging. The farm sells six December
A farm expects to harvest 30,000 bushels of corn in November. It decides to use the December contract for hedging. The farm sells six December corn futures contracts on February 3. One contract is for the delivery of 5,000 bushels. The futures price on February 3 is $5.73 per bushel. The farm finds that it is ready to sell the corn on November 7. It therefore closes out its futures contract on that date. The spot price and futures price on November 7 are $5.40 per bushel and $5.46 per bushel. Compute the effective price the farm received to sell the 30,000 bushels of corn.
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