You are the buyer for a cereal company. You think you will need 230,000 bushels of corn next month. The futures contracts on corn are based on 5,000 bushels and are currently quoted at 261.60 cents per bushel for delivery next month. If you want to hedge your cost risk, you should _____ contracts at a current value of _____ per contract.

Question

Quizplus · Accepted Answer

To hedge against cost risk for 230,000 bushels, you divide by the contract size (230,000 / 5,000 = 46 contracts). The value per contract is 5,000 bushels * 261.60 cents/bushel = 13,080,000 cents, or $13,080.

You Are the Buyer for a Cereal Company