How does a soybean farmer lock in a price of $5.40 per bushel when the cash price at harvest is only $4.90?
A) Profit in futures market to offset loss in cash market by selling futures contract at $5.40/bushel.
B) Break even in both markets by buying a futures contract at $5.40/bushel.
C) Profit in cash market to offset loss in futures market by buying futures contract at $5.40/bushel.
D) Break even in both markets by selling a futures contract at $5.40/bushel.

Question

Quizplus · Accepted Answer

The farmer can lock in the desired price of $5.40 per bushel by selling a futures contract at that price. This will offset any potential loss in the cash market where prices may drop to $4.90 per bushel at harvest time. The farmer can then deliver their soybeans at the agreed-upon futures price, regardless of the current cash price.

How Does a Soybean Farmer Lock in a Price of $5.40