Ken Thatcher, a corn farmer, has asked you to advise him on how he can protect himself against an adverse price movement regarding the sale of his corn using futures contract. He expects to have 2,000 tonnes of corn for sale in the fall. It is now early March and the cash price for corn is $480 per tonne. The settle price on a futures contract to sell corn in September is $450 per tonne.

Required:

Advise Ken on how he can hedge his risk of fluctuations using the futures market and demonstrate the calculation of Kens resulting gain or loss if the cash price of corn is

a) $430 per tonne in September and the settle price on a futures contract to buy corn is $420 per tonne. (4 marks)

b) $500 per tonne in September and the settle price on a futures contract to buy corn is $490 per tonne. (4 marks)

Enter calculation and answers here: