A feedlot is planning to purchase 120 feeder animals, each weighing 750 pounds, and estimates that 5,000 bushels of corn will be needed to feed the cattle. The feedlot then plans to feed the cattle until they reach a finished weight of 1,300 pounds, at which point they will be sold (assume no death loss, so there will be 120 animals to sell).

The feedlot manager decides to use futures contracts to hedge the prices of feeder cattle, corn and live (fed) cattle. Let's say that, on the day the hedge was placed, the futures prices were $2.15/lb for feeder cattle, $4.65/bu for corn, and $1.75/lb for live cattle. The expected basis was $0.03/lb for feeder cattle, -$0.30/bu for corn, and $0.02/lb for live cattle.

The sizes of the futures contracts are shown below. Assume the feedlot will hedge the three commodities using 2 contracts for feeder cattle, 1 contract for corn, and 4 contracts for live cattle. feeder cattle = 50,000 pounds

corn = 5,000 bushels

live cattle = 40,000 pounds

Now assume that, when the feedlot actually buys feeder cattle and corn (and then offsets its futures contracts for these two commodities), the spot and futures prices were respectively $2.05/lb and $2.00/lb for feeder cattle and $4.30/bu and $4.65/bu for corn.

Based on the information above, mark all statements that are correct. Group of answer choices:

In the corn hedge, the realized basis is different than the expected basis. Therefore, the feedlot is losing $450 with this hedge.

In the feeder cattle hedge, the realized basis is more positive than the expected basis. Therefore, the feedlot is losing money with this hedge.

The realized price for the feeder cattle hedge is greater than the target price (in $/lb).

The realized price for corn is the same as its target price (in $/bu).