You expect to deliver 50,000 bushels of wheat to the market in July. Assume you hedged your position by selling futures contracts on half of your expected delivery at a price of 443.25. The futures contracts are based on 5,000 bushels and are priced in cents per bushel. Assume the market price turns out to be 445.75 when you actually deliver the wheat. How much more or less would you have earned if you had not bought the futures contracts?

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By hedging, you locked in a price of 443.25 for 25,000 bushels. Without hedging, you would have sold all 50,000 bushels at 445.75. The difference in price is 2.5 cents per bushel. For 25,000 bushels, this results in $625 more earnings without the hedge.

You Expect to Deliver 50,000 Bushels of Wheat to the Market