Commodity Hedge
In June, farmer John Smith expects to harvest 10,000 bushels of
corn during the month of August. In June, the September corn
futures are selling for $2.94 per bushel (1K = 5,000 bushels).
Farmer Smith wishes to lock in this price.
Show the transactions if the Sept spot price rises to $3.05.
Revenue from Crop: 10,000 x 3.05 30,500
June: Short 2K @ 2.94 = 29,400
Sept: Long 2K @ 3.05 = 30,500.
Loss on Position------------------------------- ( 1,100 )
Total Revenue $ 29,400