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Burger King needs to buy 50,000kg of live cattle on May 1st, and wants to use June futures to hedge its risk. The current spot
Burger King needs to buy 50,000kg of live cattle on May 1st, and wants to use June futures to hedge its risk. The current spot price is 255 cents per kg and September futures are trading for 235 cents per kg. The standard deviation of monthly changes to the spot price of live cattle is 7.0 cents per kg. The standard deviation of monthly changes to the futures price of September live cattle contracts is 6.2 cents per kg and the correlation between spot and futures price changes is 0.74. Each contract is for 10,000kg of live cattle. What strategy should the company follow
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