Luke is a grain farmer and earlier this year he decided to use futures contracts to hedge the soybeans he will harvest in the fall. Back in March he was wondering whether he should sell his soybeans for November 2023 delivery (right after harvest) or March 2024 delivery (in which case he would have to store the grain for a few months). He didn't want to sell to deliver after March 2024 because he needs money to pay bills in the beginning of next year.The historical basis in his cash markets is around -$0.90/bu in November and -$0.75/bu in March. His cost of carry is $0.08/bu/month, and the trading fee in the futures market is $0.01/bu.

On 3/8/2023 he checked the soybean futures prices and saw the quotes below. Since the futures price for March 2024 delivery was below the futures price for November 2023, he thought it would make more sense to sell for November 2023 delivery. So he went ahead and sold his soybeans in the futures market for November 2023 delivery.

• November 2023 delivery = $13.71/bu
• March 2024 delivery = $13.66/bu

Question 4A: Back on 3/8/2023, did he make the right decision? Calculate the target price for the futures hedge for November delivery and then the target price for the futures hedge for March delivery, and check whether the target price for November was indeed higher than the target price for March.

So, Luke placed his hedge in March and sold his soybeans for November delivery locking in a futures price of $13.71/bu. Moving forward, last week he was at the coffee shop talking to some friends and one of them said that the futures market was offering a premium to deliver in March 2024 instead of November 2023. Because of that, Luke's friend argued that people who had hedges for November 2023 delivery should roll them to March 2024 delivery. Luke checked the soybean futures prices on 8/25/23 and saw the quotes below.

• November 2023 delivery = $13.86/bu
• March 2024 delivery = $13.98/bu

Question 4B: Now on 8/25/23, should Luke roll his hedge forward to March 2024 delivery? Calculate how much more (or less) he can make if he rolls the hedge forward to support your answer. The information for historical basis, cost of carry and trading fees are the same as in part 4A.