You are a small dairy owner. You have 100 cows that you are milking that each produce 70 lbs. of milk per day. That means you produce about 210,000 lbs. of milk each month. A CME Class III Milk contract is for 200,000 lbs. You want to protect your January price for milk using an option. In a word document explain this transaction.

You are concerned that the price of corn may increase over the next few months and you want to be protected from higher prices but you still want to be able to take advantage of lower prices if they occur. Explain purchase the appropriate corn option in the same document. (Assume you need 5,000 bushel of corn, one contract and use the March contract.)