An organic Tofu manufacturer needs to purchase a 200,000 bushels of high-quality organic soybeans in 2 months. However, the futures market deals with low-quality soybeans (not organic). As regards, this organic Tofu manufacturerdecides to use the low-quality soybeans for hedging.Using some historical data, we have found that the standard deviations and correlations as follows:

• _s= 0.0363_F= 0.0422and= 0.982

Each soybean contract is traded by the CME group is on 5,000 bushels. What should be hedging strategy for this organic Tofu manufacturer to lock in a price? Would she have to short or long soybean futures contract? And how many number of contracts should she short/long?

1. long34contracts
2. long40contracts
3. short34contracts
4. short40contracts