Homework $-$ Futures Market Hedging $-$ Week $14$

Situation Today: Our meeting processing operation purchases fed cattle to process and sell cuts of meat in

our meat market as well as ship online. Cost is important as we want to try and stay competitive in our

prices. Today is April and we have a need to buy cattle to process in July. We have tried to contract, but

the current price is just too high and not interested in locking in current market prices.

The current cash market price is $$120$ per cwt for a contract. We are interested in $1$ contract for July. In the

Futures Market, a contract for July is $$125$ per cwt$.$ Also, at the same time a July Option Contract strike

price of $$127$ at a $\frac{45}{?}$ cwt premium.

What effect does the current high market price mean for this buyer and what is their best way to hedge?

Set up a hedge position for this buyer and list position in the futures market to begin a hedge using a

July contract and be sure to show the option. $($show in the table for #$3)$

In July, cash cattle prices have dropped to is $$118$ per cwt$,$ and ending value of July contract is $$122.$

Show the beg$/$end hedge situation for the cash & futures market using a table as we have done in resources:

From the problem what is the:

change in basis

cash price paid for corn

profit$/$loss in hedge

net price paid