Compared to the revenues earned without futures contract

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Suppose a soybean producer planted 2, 000 acres - with an average yield of 40 bushel an acre. Current soybean prices are $I0/bushel, but are expected to fall. The producer can enter into a 4 month futures contact at a price of $9.50/bushel. After 4 months, the producer will harvest and sell the crop. A standard soybean contract is written for 5, 000 bushels. Should the producer adopt a long or short position? How many contracts does the producer need to buy to protect the entire crop? Suppose after 4 months the market (spot) price fell to $9/bushel How much higher or lower would the producer's income (revenues) be compared to the revenues earned without a futures contract?

Reference no: EM131308053

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