Suppose you are a cattle feedlot operator who plans to buy 250 feeder steers in late April at your local auction market. Assume each animal weighs 600 lbs (pounds). The current local cash price is $1.36/lb. Suppose the current price of May 2020 feeder cattle futures is 140.000 ($1.40/lb) and the feeder cattle contract represents 50,000 lbs.

You want to hedge your upcoming feeder cattle futures purchase using the May futures contract. Consider what would happen if on May 1, the cash price is $1.275/lb and the futures price is 133.000. Answer the following questions about this hypothetical hedge.

Q1) Assuming you entered your futures hedge position today and offset it on May 1, what is your total profit or loss in the futures market? (Assume you must pay fees and commissions of $25/contract/roundturn.)

Q2) Assuming you entered your futures hedge position today and offset it on May 1, what is your per-unit profit or loss in the futures market?

Q3) What is the price you pay for feeder cattle in this example (in $/lb) net of your hedging activity?