Dealings Between Grain Elevator Operators and Farmers In each of the five problems below: (a) Describe the elevator's hedging activity and, (b) Compute the profit of the elevator (ner bushel ) using the information in the table. Note: Storage cost is $.05 /month / bushel 1. Elevator purchases grain from a farmer on September 1 at three cents under the spot and immediately sells it at one cent over the spot. 2. Elevator purchases grain from farmer on September 1. He has no immediate buyer so he puts it into storage and hedges. On November 1 he has a buyer at one cent over the spot price. He sells and liquidates his hedge. 3. Elevator buys from farmer on September 1 at the March futures price less 25 cents, where the farmer sets the date the futures price will become effective. However, he delivers the grain to the elevator immediately. On September 1, the elevator sells the grain at the spot price plus 2 cent and hedges. On November 1 , farmer decides to collect his money. Elevator lifts his hedge. 4. Elevator buys from farmer on September 1 at March futures less 26 cents, where the farmer sets the date the futures price will become effective. The farmer delivers the grain on September 1, but the elevator does not have an immediate purchaser so he stores the grain. A purchaser appears on October 1 at the spot price plus 6 cent. On November 1, the farmer decides to collect his money. How could the elevator hedge: From September 1 to October 1? From October 1 to November 1? 5. Elevator agrees to pay farmer the spot price on any date the farmer chooses less a total fee that consists of: a flat fee of 3 cent/ Bu. and a 4 cent/ Bu. fee per month. The farmer delivers the grain on September 1 whereupon the elevator immediately sells the grain at the September spot plus 2 cent and also hedges. On November 1 the farmer demands his money and the elevator lifts his hedge