A farmer expects to harvest 800,000 bushels of corn.To eliminate price risk,the farmer elects to short corn futures.What would cause the farmer to short only 720,000 bushels of corn?
A) Basis risk
B) Illiquid futures markets
C) Margin requirements
D) Quantity uncertain

Question

Quizplus · Accepted Answer

The farmer may short only 720,000 bushels of corn if they are uncertain about the quantity they will actually be able to harvest. This could be due to various reasons such as weather conditions, pests, or diseases. In order to avoid the risk of not being able to fulfill their futures contract, the farmer may choose to hedge a smaller amount.

A Farmer Expects to Harvest 800,000 Bushels of Corn