Suppose on September 28th, 2018 you consider buying and storing corn for three months until the end of December 2018. You decide to establish a forward price for your corn by selling December'18 futures contracts. The local cash price for corn that day is $3.50/bu and the December'18 futures price is $3.73/bu. From historical records, you estimate that the local cash price will be $0.10/bu under futures at maturity for the December'18 contract. Storage costs are $0.02/bu per month, and the brokerage fee to trade futures contracts is $0.01/bu. 1. On September 28th, 2018, what is your target price per bushel for December'18? (Write as X.XX) * 2. On September 28th, 2018, what is your expected profit per bushel for December'18? (Write as X.XX) * 3. On November 14th, 2018 you notice that the December 18 contract is trading $0.35/bu below July'19 futures (December quotes $3.83/bu and July $4.18/bu). You estimate that the cash will be $0.15/bu under when the July'19 contract matures. If you roll your hedge forward on November 14th, 2018, what are your target price and expected profit for July'19? (Write the target price first, followed by -, then the expected profit. X.XX-X.XX). 4. If you decide to roll your hedge forward, which trades do you need to do? Compare the expected profit for July 19 with the expected profit for December'18. The difference in expected profits is (Write as X.XX) * Suppose on September 28th, 2018 you consider buying and storing corn for three months until the end of December 2018. You decide to establish a forward price for your corn by selling December'18 futures contracts. The local cash price for corn that day is $3.50/bu and the December'18 futures price is $3.73/bu. From historical records, you estimate that the local cash price will be $0.10/bu under futures at maturity for the December'18 contract. Storage costs are $0.02/bu per month, and the brokerage fee to trade futures contracts is $0.01/bu. 1. On September 28th, 2018, what is your target price per bushel for December'18? (Write as X.XX) * 2. On September 28th, 2018, what is your expected profit per bushel for December'18? (Write as X.XX) * 3. On November 14th, 2018 you notice that the December 18 contract is trading $0.35/bu below July'19 futures (December quotes $3.83/bu and July $4.18/bu). You estimate that the cash will be $0.15/bu under when the July'19 contract matures. If you roll your hedge forward on November 14th, 2018, what are your target price and expected profit for July'19? (Write the target price first, followed by -, then the expected profit. X.XX-X.XX). 4. If you decide to roll your hedge forward, which trades do you need to do? Compare the expected profit for July 19 with the expected profit for December'18. The difference in expected profits is (Write as X.XX) *
