You are a soybean oil plant manager and know that you will need 1 million bushels of soybeans to keep the plant operating in the month of July. In January, you are fairly certain soybean prices are going to go up, so you want to lock in prices for June purchase. You decide to hedge and purchase 200 July soybean contracts. In January, the July futures price is $14.4850 with a basis of $0.25. Brokerage fees for each contract is $5.00 round-turn.In July, futures prices are $14.2250 with a basis of $0.55.DateCash MarketFutures MarketBasisJanuary July Results In January do you take a long or short position in the futures market?In July, what do you do in the futures market? Cash market?What is the cost from the cash market?Was there a gain or loss in the futures market?What was the net profit/loss in the futures market (don’t forget the brokerage fees)What happened to basis?Was this a scenario a long hedge or a short hedge? Why?What was the net price paid per bushel for this scenario?

In January, as the plant manager, you take a long position in the futures market by buying 200 July…

In January do you take a long or short position in the futures market? In July, what do you do in the futures market? Cash market? What is the cost from the cash market? Was there a gain or loss in the futures market? What was the net profit/loss in the futures market (don’t forget the brokerage fees) What happened to basis? Was this a scenario a long hedge or a short hedge? Why? What was the net price paid per bushel for this scenario?

In January do you take a long or short position in the futures market? In July, what do you do in the futures market? Cash market? What is the cost from the cash market? Was there a gain or loss in the futures market? What was the net profit/loss in the futures market (don’t forget the brokerage fees) What happened to basis? Was this a scenario a long hedge or a short hedge? Why? What was the net price paid per bushel for this scenario?

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 37P

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