Assume you are a wheat producer in eastern Colorado. You have 3200 acres (or 5 sections) in production and your potential yield (based on a trend-yield projection) is 37.5 bushels per acre. Production costs are $145 per acre.

It is currently December 1, 2020. You are considering hedging some of the wheat crop which you will market at harvest in early-July or which you will store until early-October. If you store the grain, you will only do so until October because you will need the cash flow to meet a production operating note payment. We will use the basis information that is similar to what was constructed from Problem Set 1.

You have made a small basis table and include the basis information for the relevant months. Averages and standard deviations are reported below.

	Potential Futures Contracts
Calendar Month	MAR	MAY	JULY	SEP	DEC
Harvest Transaction Month July	----	----	-0.56 (0.47)	-0.65 (0.53)	----
Storage Transaction Month October	-0.98 (0.50)	-1.01 (0.52)	----	----	-0.85 (0.48)

E. Assume you decided to store and hedge the wheat in July. It is now October 1, 2021 and you need some cash flow. You are going to lift the hedge and sell the stored wheat. The KC wheat futures prices at harvest are

10/1 DEC $5.95/bu.

MAR22 $6.05/bu.

MAY $6.15/bu.

JUL $5.97/bu.

SEP $6.07/bu.

DEC $6.15/bu.

Complete the following T-account below to examine its effectiveness. Assume the current basis is 13 cents per bushel stronger than expected.

Date	Cash			Futures			Basis
12/1 2020	Forward Price = $/bu.			________ __ contracts (Buy or Sell) (#)			$___/bu. (expected)
				of _____ wheat (contract month and year)
				@ $____/bu
7/1 2020	Cash Wheat @ $/bu.			________ __ contracts (Buy or Sell) (#)			$____/bu. (actual)
				of _____ wheat (contract month and year)
				@ $____/bu
				Futures Gain/Loss $____/bu.