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What strategy should the beef producer follow

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The sd of monthly changes in the spot price of live cattle is 1.2 cents per pound. The sd of monthly changes in the futures price of live cattle for the closest contract is 1.4. The correlation between the futures price change and the spot price change is 0.7. It is now Oct. 15. A beef producer is committed to purchasing 200,000 pounds of live cattle on Nov. 15. The producer wants to use the December live cattle futures contracts to hedge the risks. Each contract is for the delivery of 40,000 pounds of cattle. What strategy should the beef producer follow?

Reference no: EM132530905

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