Question
The following questions use the table below about a feedlot that needs cattle later in the year. Now Later Cash Feeder Cattle Market $135.75/cwt $136.00/cwt
The following questions use the table below about a feedlot that needs cattle later in the year.
Now | Later | |
Cash Feeder Cattle Market | $135.75/cwt | $136.00/cwt |
Futures Feeder Cattle Market | $133.75/cwt | $135.00/cwt |
1) Is the individual concerned about price increasing or decreasing?
2) What is the initial action in the futures market: buy or sell?
3) What is the cash price paid/received by the individual later?
4) Did the individual earn a profit or loss in this hedging situation? Enter profit or loss in the following blank.
5) What is the value (i.e. amount) of the profit/loss on the hedge for one contract (signs matter)?
6)What is the total value of the profit/loss on this futures market hedge assuming 4 contracts are used with each contract accounting for 50,000 pounds (i.e. 500 cwt.)?
7) The basis was initially $2.00 and ended up being _______________.
8) The individual made the right decision to hedge: Yes or No.
9) The hedged price in this example was not the current cash price due to the basis changing. What was the hedged price?
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