Question
A wheat farmer expects to harvest 260,000 bushels of wheat in September. In order to pay for the seed and equipment the farmer had to
A wheat farmer expects to harvest 260,000 bushels of wheat in September. In order to pay for the seed and equipment the farmer had to withdraw $150,000 from his savings account on January 1 of this year. He earns 4.8% interest on the savings account and interest on the account accrues monthly in arrears. The farmer is worried about fluctuations in the wheat price and wishes to hedge the position. Wheat futures are currently quoted as follows: September : 341 cents per bushel December: 355.5 cents per bushel The prices quoted are in cents per bushel and wheat futures contracts are per 5000 bushels. What position should he take to hedge his position?
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