Question
Suppose you operate a distillery in the U.S. and you purchase corn on a regular basis. It is December and you are in the process
Suppose you operate a distillery in the U.S. and you purchase corn on a regular basis. It is December and you are in the process of planning your corn purchases for the month of April wanting to take delivery of the corn during mid-April. May corn futures are currently trading at 5.75 dollars per bushel. The local basis is 5 cents per bushel over.
You go LONG on a May corn futures contract at 5.75 dollars per bushel and the basis is 5 cents underwent you actually buy corn from your supplier in April.
- What would be the net purchase price in April in the May Corn futures price is:
| May futures price | Net purchase price |
| 5.58 dollars per bushel |
|
| 5.84 dollars per bushel |
|
| 5.91 dollars per bushel |
|
SHOW YOUR WORK. Use a T-account. Unsubstantiated answers will not be accepted
- What would your net purchase price be if May corn futures is 5.80 dollars per bushel and the basis is 7 cents per bushel over when you offset your futures position in April? Show your work. Use a T-account.
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