You, a Farmer, Anticipate Taking 80,000 Bushels of Soybeans to the Market

question 74

Multiple Choice

You, a farmer, anticipate taking 80,000 bushels of soybeans to the market in three months. The current cash price for soybeans is $5.85. The size of the futures contract is 5,000 bushels per contract, and the current three-month futures price is $5.88. You decide to hedge one-half of your exposure to a drop in the value of soybeans. Assume that in three months, when you take the soybeans to market, you close out the futures contracts and the price has fallen to $5.80. What was your overall net gain or loss when considering the actual gain or loss when taking the actual soybeans to market and the partial hedge in the futures market?

• A)$800 gain
• B)$800 loss
• C)$400 gain
• D)$400 loss
• E)$320 gain

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