You have a hog finishing operation. In November, you decide to buy 4 contracts of May corn futures to lock‐in your input costs on 20,000 bushels of corn to be purchased in March, April and May.

I want you to complete the transaction, under three different scenarios; higher futures prices, lower futures prices and steady futures prices. 

Fill in the blanks in the T‐diagram, showing the price you received in $/bushel or in gross sales revenues (price * quantity). Ignore brokerage costs.

Scenario #1: higher futures prices

Date	Cash	Futures	Basis
November	Corn harvest is over and you are concerned about the possibility of corn costs rising next spring.	Buy 4 contracts of May corn futures to lock in a purchase price on corn to be fed in March, April and May. Futures price: $5.26	Expected corn basis a local buying basis of ‐$0.30/bu., or 30 cents under the May contract. futures price + expected basis = expected price $5.26 + (‐$0.30) = $4.96
March	Buy 20,000 bushels of corn from local sources for $6.03/bu.	Offset the hedge ‐ sell May corn futures at $6.39/bu.	What is the corn basis in March? $/bu. _____________
Results	What did you pay for corn in the cash market? $/bu. _____________ $total _____________	What was your gain or loss in the futures market? $/bu. _____________ $total _____________	What final price did you pay for corn? $/bu. _____________ $total _____________

Scenario #2: lower futures prices

Date	Cash	Futures	Basis
November	Corn harvest is over and you are concerned about the possibility of corn costs rising next spring.	Buy 4 contracts of May corn futures to lock in a purchase price. Futures price: $5.26	Expected corn basis a local buying basis of 30 cents under the May contract. expected price = $5.26 + (‐$0.30) = $4.96
March	Buy 20,000 bushels of corn from local sources for $4.41/bu.	Offset the hedge ‐ sell May corn futures at $4.65/bu.	What is the corn basis in March? $/bu. _____________
Results	What did you pay for corn in the cash market? $/bu. _____________ $total _____________	What was your gain or loss in the futures market? $/bu. _____________ $total _____________	What final price did you pay for corn? $/bu. _____________ $total _____________

Scenario #3: steady futures prices

Date	Cash	Futures	Basis
November	Corn harvest is over and you are concerned about the possibility of corn costs rising next spring.	Buy 4 contracts of May corn futures to lock in a purchase price. Futures price: $5.26	Expected corn basis a local buying basis of 30 cents under the May contract. expected price = $5.26 + (‐$0.30) = $4.96
March	Buy 20,000 bushels of corn from local sources for $4.99/bu.	Offset the hedge ‐ sell May corn futures at $5.26/bu.	What is the corn basis in March? $/bu. _____________
Results	What did you pay for corn in the cash market? $/bu. _____________ $total _____________	What was your gain or loss in the futures market? $/bu. _____________ $total _____________	What final price did you pay for corn? $/bu. _____________ $total _____________