Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Hedging HW Please read all instructions before beginning each problem. Be sure to show what equations vou are using and / or vour work. We
Hedging HW Please read all instructions before beginning each problem. Be sure to show what equations vou are using andor vour work. We will arade this for partial credit. You are a farmer in southcentral Pennsylvania producing winter wheat for the cash grain market. You are planting acres of winter wheat in the fall of You expect a yield of at least bushels per acre. You are wondering whether you should hedge your output. The table lists the wheat basis in your area based on recent history. You plan to sell your wheat in July of The current futures price on the CMC for July is $ per bushel. a If the CMC price stays the same, what price will you expect to receive in July selling locally per bushel? What about for your total harvest sold locally? b You speculate that next July's harvest might be higher than expected, causing prices to drop at July harvest time. So you want to protect yourself by locking in the July futures price with the intention of completing a price hedge for your crop. Briefly explain the steps you would take in the fall including the values of any salespurchases amounts, and the time it occurs It is July and you actually had drought that caused a bad crop. You just harvested bushels in July You waited until now to buy an offsetting futures contract and the CMC July futures costs $ per bushel. Your lecal mill paying $ per bushel. c If you decided to hedge in the fall, explain what steps you are now completing including the values of any salespurchases amounts, and the time it occurs d Calculate how much money you madeloss from your hedge per bushel. Show any calculations Remember: You used a commission is cent per bushel to buy or sell e Regardless of deciding to hedge or not, you must sell your harvest. How much would you make from selling your wheat locally to the mill? Remember: You are selling directly to the mill, so you don't have to pay commission. f Considering both your local sale and hedge, how much money did you makelose this season what is your net How would it compare to if had you never hedged? Show your calculations.
Hedging HW
Please read all instructions before beginning each problem. Be sure to show what
equations vou are using andor vour work. We will arade this for partial credit.
You are a farmer in southcentral Pennsylvania
producing winter wheat for the cash grain market.
You are planting acres of winter wheat in the
fall of You expect a yield of at least
bushels per acre. You are wondering whether you
should hedge your output.
The table lists the wheat basis in your area based
on recent history.
You plan to sell your wheat in July of
The current futures price on the CMC for July is
$ per bushel.
a If the CMC price stays the same, what price will you expect to receive in
July selling locally per bushel? What about for your total harvest sold
locally?
b You speculate that next July's harvest might be higher than expected, causing
prices to drop at July harvest time. So you want to protect yourself by locking in
the July futures price with the intention of completing a price hedge for your crop.
Briefly explain the steps you would take in the fall including the values of
any salespurchases amounts, and the time it occurs
It is July and you actually had drought that caused a bad crop. You just
harvested bushels in July You waited until now to buy an offsetting
futures contract and the CMC July futures costs $ per bushel. Your lecal mill
paying $ per bushel.
c If you decided to hedge in the fall, explain what steps you are now
completing including the values of any salespurchases amounts, and the
time it occurs
d Calculate how much money you madeloss from your hedge per bushel.
Show any calculations
Remember: You used a commission is cent per bushel to buy or sell
e Regardless of deciding to hedge or not, you must sell your harvest. How much
would you make from selling your wheat locally to the mill?
Remember: You are selling directly to the mill, so you don't have to pay
commission.
f Considering both your local sale and hedge, how much money did you
makelose this season what is your net How would it compare to if had
you never hedged? Show your calculations.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started