Suppose your firm produces breakfast cereal and needs 105,000 bushels of corn in December 2020 for an upcoming promotion. You would like to lock in your costs today because you are concerned that corn prices might rise between now and December. (Use Table 23.1. to see Corn Futures)

a. How could you use corn futures contracts to hedge risk exposure?

b. What total cost would you effectively be locking in based on the closing price of the day?

c. Suppose corn prices are $7.41 per bushel in December. What is the profit or loss on your futures position?

d. Explain how the futures position has removed the exposure to price risk in the corn market.

From Platinum to Orange Juice: Futures Contracts Commodity futures prices, including open interest, or the number of contracts outstanding. Nearby-month contracts are listed first. Most-active contracts are also listed, plus other notable months. KEY TO EXCHANGES: CBT: Chicago Board of Trade; CME: Chicago Mercantile EXchange; CMX: Comex; KC: Kansas City Board of Trade