Now assume that when the cattle are placed on feed at the beginning of the planning period,

the feedlot expects to finish $120,000lb$ of live cattle for the January spot market $($this would

be approximately $90$ head of cattle$).$

a$.$ Based on the size of the live cattle futures contract, once again using the information in

Table $8\mathrm{.}1$ or the CME Group's website, how many live cattle futures contracts should

the feedlot use to hedge two$-$thirds of their planned spot market quantity?

Hedge Quantity $=?$

Live Cattle Futufes Contract Size $=?$

Total Number of Contracts $=$ Hedge Quantity $\frac{?}{?}$ Contract Size $=?$

b$.$ In January, the feedlot sold $110,000lb$ of finished live cattle to the packer $($at a price of

$$120\mathrm{.}00$ per cwt$).$ Calculate their net revenue $($total dollars$)$ based on the combined

outcomes of both the spot market and futures market $($using the same futures market

prices shown in the T$-$account diagram$).$

Net Revenue $=$ Total Cash Revenue $+$ Total Futures Profits $=?$

c$.$ Calculate the net price $($$ per cwt$)$ the feedlot received based on the hedged quantity of

two$-$thirds of the feedlot's expected January quantity where you should divide the net

revenue from the previous question by the total pounds sold in the cash market.

Net Price $=$ Net Revenue $\frac{?}{?}$ Spot Market Quantity $=?$Hedging in Practice $($Future Markets$)$

Complete a T$-$account in the table below for a feedlot that places feeder cattle on feed in

September. Use the information in Table $8\mathrm{.}1($or the CME Group's website$)$ to determine the

appropriate futures contract expiration month for this feedlot. Also use the T$-$accounts in

Figure $8\mathrm{.}6$ as a guide.

Beginning of the planning period $($September$)$: The appropriate futures contract is

trading at $$130\mathrm{.}00$ per cwt when the cattle are placed in September.

End of the planning period $($January$)$: The cattle are finished and ready to be sold. The

spot price the cattle will receive is $$120\mathrm{.}00$ per cwt$.$ The appropriate futures contract is

trading at $$118\mathrm{.}00$ per cwt$.$

a$.$ For A: Define the appropriate position the feedlot needs to take in the futures market in

August. $(?)$

b$.$ For B: Define the appropriate futures contract expiration month the feedlot should use

when initiating their hedge in September. $(?)$

c$.$ For C: Define the appropriate position the feedlot needs to take in the futures market in

December to offset their futures position. $(?)$

d$.$ For D: Define the appropriate futures contract expiration month the feedlot should use

when offsetting their hedge in December. $(?)$

e$.$ Calculate the feedlot's per unit net price $($ $ per cwt$)$ considering both the spot and

futures transactions. Show your work.

Net Price $=$ Spot Market Price $+$ Futures Profits $=?$