What is the net cashflow for the grain

Reference no: EM133291016

Question: Information provided below will be used to provide a numerical answer in this question box and also a written explanation in the next question. You will be required to submit your work for this question as a file upload. As part of your submitted work, be sure to label the specific position (number of contracts and long or short) taken in the futures market

Assume it is currently June and a grain mill is planning to purchase 54,096 bushels of oats near the end of September. The oat futures contract with September expiration and matching the date of the grain mill's intended purchase has a current price of $5.96/bu and each contract covers 5,000 bushels. Assume the grain mill hedges the purchase of oats using the futures market. Specifically, the grain mill will will take the appropriate position (long or short) in the futures market that will reduce the uncertainty surrounding the total cashflow. Further, the grain mill will determine the appropriate number of futures contracts by rounding down to the nearest whole number.

What is the net cashflow for the grain mill if the spot price of oats in in September is $6.55/bu at the moment the grain mill purchases the grain and the futures contracts expire? Reminder- a cash inflow should be marked positive and a cash outflow should be marked negative.

Reference no: EM133291016

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