Problem $2.$

Assume you are a corn producer with grain in storage at your local elevator. You are trying to

decide whether to sell your grain now or continue to own it in storage, with a hedge. Here is the

situation:

March $1$: Cash bid at elevator: $$\frac{9\mathrm{.}72}{?}$ bu$.$; July corn futures: $$\frac{10\mathrm{.}68}{b}u.$

What is the opening basis $($vs May futures$)?$

During the past $3$ years, the average July basis has been $45\frac{c}{b}u$ under futures. Assuming you

expect a similar basis this year, what is the projected improvement in basis?

Cost$-$of$-$carry: The elevator charges $5\frac{c}{b}\frac{u}{m}o$ for storage, and the interest rate on your operating

loan is $5\%.$ What is your total per month cost of carry?

Suppose on July. $1,$ the cash price is $$10\mathrm{.}87$ and the July Futures is $$11\mathrm{.}26.$ Find the actual basis

improvement and profit$/$loss in this scenario.

Actual Basis$=$

ABI$=$

$$ Profit$/$Loss: