A farmer currently holds 6,000 bushels of corn. The local mill is offering a price of $3.25 per bushel. Currently, a three-month futures contract is trading at $3.45. The farmer is considering selling to the local mill or holding the corn in inventory and selling a futures contract now. The farmer can store and insure the corn at a cost of 18 cents per bushel per annum to be paid monthly in advance at the beginning of each month. Interest rates are 9%, continuously compounded.

             (a)       Calculate total carrying cost of 6,000 bushels of corn.

(b)       What is the theoretical price for a three-month futures contract.

(c)       What is the best strategy for the farmer to minimize risk and maximize gain? Explain why.

(d)      What is the basis today?