This is a question related to Futures contract:

Question 1: When people say 'Futures Price', do they refer to the market price of the futures contract expiring in E.g. June?

For example, for an indices futures contract expiring in June, is it right for me to say that the futures price can be $350 today and $340 tomorrow (market equilibrium)?

From this, if futures price is current $350 (today), will I be able to lock in a stop order for futures price at $360 later today?

Question 2: (Refer to the 2 screenshots)

For scenario 1(Gains), the lecturer said that this was a success hedge that offset gains/loss

To this:

1. Gain on Futures contract: (Futures1[now] of $275) - (Spot2[later] of $270) = $5 per contract gain
2. Loss on position: (Spot2[later] of $270) - $275 (is this referring to current futures or spot price?) = $5 loss on position

I am confused with '2.' where my lecturer had assumed that his current position of $275 is in reference of the spot price, which happens to be the future prices as well. May I know why did he do that assumption? Shouldn't the CURRENT spot price be listed in the question to tell the increase/decrease in position?

For example,

F1 = $275

S1 = $280

S2 = $270

1. Loss on Position of: S1 - S2 = $270 - $280 = $10 loss on position
2. Gain on Futures of: F1 - S2 = $275 - $270 = $5 gain on future

ACTUAL QUESTION

It is 15 October. An Australian wheat farmer wants to sell 1 million metric tonnes of Western Australian wheat in January. The futures price for January delivery on the ASX is AUD 275 per metric tonne. Each contract is for 20 metric tonnes.

• -How can the farmer hedge his exposure?
• -What is the gain/loss on the futures contract if the spot price of wheat on 19
• January is:
• - AUD 270 per metric tonne? - AUD 285 per metric tonne?

- The farmer can hedge with the following transactions:

- 15 October: Short 50,000 January futures contracts on Western Australian

wheat

- 19 January: Close out futures position

- Futures price on 19 January should be very close to the spot price - If the spot price is AUD 270

Gains = AUD 275 - AUD 270 = AUD 5 per contract - If the spot price is AUD 285

Losses = AUD 285 - AUD 275 = AUD 10 per contract