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Sarah is a grain farmer and she is planning to sell her corn right after she is done with harvest in the fall. The breakeven
Sarah is a grain farmer and she is planning to sell her corn right after she is done with harvest in the fall. The breakeven price for her operation is $ bu ie she needs to sell for more than $bu to make a profit. Today she is considering the following marketing alternatives. Sell the grain in her local cash market using a forward contract for December delivery at $ She checks the soybean futures market and sees that the futures price for December delivery is trading at $ bu Historically, the basis in her cash market is around $bu in December. Based on the information above, mark all the statements below that are correct. If Sarah decides to use the forward contract, she will be locking in a guaranteed loss. If the futures price increases during the hedge between today and December the realized price with the forward contract will be higher than the realized price with the futures contract. If the realized basis at delivery is as expected, the realized price with the futures contract will be higher than the realized price with the forward contract. If the realized basis at delivery is wider than $ the realized price with the futures contract will be lower than the realized price with the forward contract. If the realized basis at delivery is narrower than expectect the realized price with the futures contract will be above breakeven. If the futures price decreases during the hedge between today and December the realized prices with both the forward contract and the futures contract will be higher than breakeven.
Sarah is a grain farmer and she is planning to sell her corn right after she is done with harvest in the fall.
The breakeven price for her operation is $ bu ie she needs to sell for more than $bu to make a profit.
Today she is considering the following marketing alternatives.
Sell the grain in her local cash market using a forward contract for December delivery at $
She checks the soybean futures market and sees that the futures price for December delivery is trading at $ bu
Historically, the basis in her cash market is around $bu in December.
Based on the information above, mark all the statements below that are correct.
If Sarah decides to use the forward contract, she will be locking in a guaranteed loss.
If the futures price increases during the hedge between today and December the realized price with the forward contract will be higher than the realized price with the futures contract.
If the realized basis at delivery is as expected, the realized price with the futures contract will be higher than the realized price with the forward contract.
If the realized basis at delivery is wider than $ the realized price with the futures contract will be lower than the realized price with the forward contract.
If the realized basis at delivery is narrower than expectect the realized price with the futures contract will be above breakeven.
If the futures price decreases during the hedge between today and December the realized prices with both the forward contract and the futures contract will be higher than breakeven.
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