How the sheep farmer can lock in a profit for business

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In July 2021, a sheep farmer became concerned that by the time she sells her crop of 21,000 kg of wool in November 2021 that the price would fall from its current $13.50 per kg to less than her $12.00 per kg break-even price. One wool contract is for 2,500 kg, and September and December wool futures prices are $12.90 and $12.70 respectively.

Question 1: how the sheep farmer can 'lock in' a profit for her business by entering and subsequently reversing a futures market position, if in November, the spot and December futures prices increase to $13.10 per kg and $13.20 per kg respectively.

Reference no: EM132861385

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