A Soybean Farmer Anticipates the Harvest of 10,000 Bushels but Is

question 75

Essay

A soybean farmer anticipates the harvest of 10,000 bushels but is concerned about the spot price that may exist at that time.He therefore sells two futures contracts (5,000 bushels each,@ $5.75 per bushel).Unfortunately,the farmer was overly pessimistic,and the spot price at contract expiration is $6.00 per bushel.Ignoring the premium paid,and making the simplifying assumption that the contract was only held for one "day," show the farmer's financial results of hedging.

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Definitions:

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