Question
Edit question A corn farmer expects to harvest $ 50,000 bushels of corn by mid-July 2010. Price per bushel = $ 3.70 A future contract
Edit question A corn farmer expects to harvest $ 50,000 bushels of corn by mid-July 2010.
Price per bushel = $ 3.70
A future contract on corn maturing on July 12, 2010 is available on May 3, 2010 with following specifications.
Date Future contract closing price per contract ( US$)
May 3, 2010
May 17, 2010 3.80
May 31, 2010 3.60
June 14, 2010 3.40
June 28, 2010 3.50
July 12, 2010 3.50
If the corn farmer in the example above harvests 60,000 bushels, what amount will he receive? What if he had not hedged his position? If the corn farmer in the example is able to harvest only 40,000 bushels and the price per bushel rises to US$3.90 due to short supply of corn, will his exposure be completely hedged? Why? Why not? Support your answer with calculations. (5 points
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