You are farming cotton in Mississippi. You plan on produce pounds per acre and you have acres in production. Harvest happened on September Today, December the February futures market, cotton is selling for $ per pound. The local elevator is offering contracts at $ You sell to match your harvest on the future for February on December

On January the price has fallen to $ on the February futures, and the local elevator is paying $ You sell your cotton at the local elevator. And you buy your future contract back.

Your cost in production is $ per pound.

How many pounds are you selling?

The local elevator pays when you sell pounds for a total revenue of

It costs per pound to produce. Your total costs are

What is your profit per pound from the local elevator What is your total profit from the local elevator?

Then you add in the profit or loss of the hedge.

How many pounds are you hedging?

You sell on the futures market at what price? You buy on the futures market at what price? What is your profit per pound on the hedge?

Profit per pound without hedge above is hedging profit per pound

Total Profit for this years harvest including hedge