Mesa Rosa Tortilla company is a large producer of tortilla chips for restaurants and grocery

stores. The main ingredient in the chips is corn flour, so they need large quantities of corn to

make the flour and the chips. The demand for Mesa Rosa chips is seasonal, occurring between

mid$-$November through the end of December. To meet production schedules, Mesa Rosa must

acquire $25,000$ bushels of corn by mid$-$September to meet the holiday demand. The firm is

worried that between now $($May$)$ and September corn prices will rise. To keep their profit

margins in place, the corn must be purchased at $$2\mathrm{.}25$ or less. The current September corn

futures contract is trading at $$2\mathrm{.}11$ per bushel for a $5,000$ bushel contract.

a$.$ What position should Mesa Rosa take in the September corn futures market if they

want to hedge a corn purchase in September? $($Long or short and how many contracts$)$

b$.$ Closing spot in September is $$3\mathrm{.}15$ per bushel. If convergence takes place, compute

the change in Mesa Rosa's futures position since May. $($Total dollar terms$)$

c$.$ What price would Mesa pay for the corn in September and what would be its total

dollar cost?

d$.$ What would be the dollar savings or additional dollar expenses from the futures

position?

e$.$ What would the net hedged price of the corn be to Mesa?