Suppose that you are a wheat farmer. Answer the following questions:

1. It is September, and you intend to have 50,000 bushels of wheat harvested and ready to sell in November. The current spot market price of wheat is $2.50 per bushel, and the current December futures price of wheat is $2.75 per bushel. Should you buy or sell December wheat futures? If each wheat futures is for 5,000 bushels, how many contracts should you buy or sell? How much will your position be worth in the futures market in September?

2. It is now November, and you sell 50,000 bushels of wheat at the spot price of $ 2.60 per bushel. If the December futures price is $2.85 and you settle your position in the futures market (note that you are settling your position before the settlement date on the contract, which is December), what was your gain or loss in your futures market position? Did you completely hedge your risk from price fluctuations in the wheat market? Explain.