as many questions that you can answer

Hedging Problem 1 5pts. Mr. Gott A. Paulum's.cousin, John Grinder, has a flour mill in Hometown, Wyoming. In March Mr. Grinder is concerned that the drought situation across the Midwest will strengthen cash prices for wheat above a level of the last few years, which could be costly to his business On March 15, he places a hedge for 50,000 bushels of July wheat. He got in the futures market for $3.00/bul and expects the basis to be $0.30 under in the delivery month. In July Mr. Grinder buys the wheat from the local elevator for $3.40/bu, and lifts the hedge for $3.75/bu. 2) Is this an example of a short hedge or a long hedge? b) What is the expected target price when the hedge is placed? c) Show the transactions in the cash and futures market (use same format as presented in class). Date Cash Market Futures Market IE d) What is the realized price after the hedge is lifted? e) What was the basis when the hedge was lifted? A Did basis narrow (strengthen) or widen (weaken) compared to expectations? Hedging Problem 2 5pts. Mr. Preublum's brother, Jim Feeder, runs the WE-GROWEM-GOOD cattle company. He has a small feedlot to use his labor more efficiently. Jim checks the outlook information on April 1, and there seems to be uncertainty with cattle prices. He expects to sell forty head of steers weighing about 1250 pounds apiece in October. Jim's daughter, Daisy, urges him to hedge the cattle (now that she has a college degree, she thinks she knows everything). He tells her to handle the marketing of his fed cattle this year. She places a hedge on April 5 at a futures market price of $108.70/cwt. She expects the basis to be about $2.25/cwt under when she sells cattle. In October she sells the steers to a cattle buyer FOB the feedlot for $109.25/ewt, and lifts the hedge for $111.50/cwt. a) Is this an example of a short hedge or a long hedge? b) What is the expected target price when the hedge is placed? c) Show the transactions in the cash and futures market (use same format as presented in class). Date Cash Market Futures Market HE d) What is the realized price after the hedge is lifted? e) What was the basis when the hedge was lifted? Did basis narrow (strengthen) or widen (weaken) compared to expectations? Hedging Problem 3 5pts. John Backgrounder estimates he will need 20,000 bushels of corn for his cattle operation by mid- November. His price outlook at this time is bullish. He places a hedge for the corn using December contracts at a price of $3.20/bu. He expects basis to be about $0.35 under by mid- November. On November 16, he buys the 20,000 bushels of corn from a nearby elevator for $3.30/bu. He lifts the hedge at that time for $3.61/bu. a) Is this an example of a short hedge or a long hedge? b) What is the expected target price when the hedge is placed? c) Show the transactions in the cash and futures market (use same format as presented in class). Date Cash Market Futures Market d) What is the realized price after the hedge is lifted? I e) What was the basis when the hedge was lifted? 0 Did basis narrow (strengthen) or widen (weaken compared to expectations? Hedging Problem 4 5pts. Mr. Gott A. Praublum produces wheat on some leased ground. He doesn't have any grain storage on his place, however. This means at harvest he will have to sell all of his wheat or use commercial storage. He plants his wheat in the fall, and discusses the possibility of hedging his wheat with his banker. Mr. Lender agrees that given Mr. Publum's current financial situation, he cannot withstand a big market risk on his crop. Mr. Paublum expects to harvest his wheat at the end of July and pay off a note at the bank with the sale of his crop. He planted a total of 1000 acres and his past production records indicate an average yield of 30 bushels per acre. On December 1, Mr. Praublum has his broker, Fingers Meppelli. place the hedge. Finger informs Mr. Praublum he got in the market for $4.76/ba, for the entire expected harvest. According to historical data the basis is usually $0.40/bu, under at the end of July. At harvest Mr. Praublum sells his wheat at the local elevator for $4.00/bu, and lifts the hedge for $4.25/bu. a) Is this an example of a short hedge or a long hedge? b) What is the expected target price when the hedge is placed? c) Show the transactions in the cash and futures market (use same format as presented in class). Date Cash Market Futures Market I d) What is the realized price after the hedge is lifted? e) What was the basis when the hedge was lifted? Did basis narrow (strengthen) or widen (weaken) compared to expectations