You are going to sell your feeder cattle in the future and are afraid that prices will
Question:
You are going to sell your feeder cattle in the future and are afraid that prices will drop. Therefore, you decide to enter the futures market. The cash price today (March) is $1.71/lb. The September futures price today is $1.85/lb. Note that feeder cattle futures prices are normally reported in cents per pound, however, you do not have a cent sign on your keyboard so please convert your answers to $/lb like the context of the problem has done.
What is the current basis?
Use the above information as well as the following. We are in September in the future. The cash price has decreased to $1.66/lb and the futures price has decreased to $1.65/lb.
The basis in September has weakened, stayed the same, or strengthened?
What is your profit or loss on futures? (Write # gain/loss)
What is your net selling price as a result of hedging?
Intermediate Accounting
ISBN: 978-0470161012
9th Canadian Edition, Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.