A small soybean grower expects to harvest one hundred thousand bushels in 6 months. The current cash price for the crop is $16.25 per bushel. The soybean futures contract that matures in four months is currently trading at $16.25 per bushel. Each contract is for five thousand bushels.

1. How many futures contracts should the grower trade to hedge the crops price risk

1. Which should the grower do, go long or short in the market to hedge?

1. In 6 months the price of soybeans is $15.25 due to decreased overseas demand, the futures contract is $15.25 per bushel. How much is the gain or loss on the cash crop? On the futures contracts?

1. If this an effective hedge? Explain

(2.5 points each for all four parts, I will double your score for the extra credit I promised you, So a 8.5 becomes an extra 8.5 points as well on your overall score)