The seller of a pork bellies futures contract at $1.41 per pound noted that the closing price of pork bellies was $1.44 today.What will happen to this contract,which requires delivery of 40,000 pounds of pork bellies at expiration?

Question

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The seller of the futures contract sold 40,000 pounds of pork bellies at $1.41 per pound for a total contract value of 40,000 x $1.41 = $56,400. At expiration, the seller is obligated to deliver 40,000 pounds of pork bellies. However, the price of pork bellies has increased to $1.44 per pound, which means the seller has to pay $1.44 x 40,000 = $57,600 to acquire enough pork bellies to fulfill the contract. Therefore, the seller will incur a loss of $57,600 - $56,400 = $1,200.

The Seller of a Pork Bellies Futures Contract at $1