lecture 12

Question 1

what is done in a strong price and wide basis scenario?

Answer 1

store grain

hedge price with ‘short’ futures

(good local market, large difference between cash and futures price)

Question 2

what is done in a strong price narrow basis scenerio?

Answer 2

deliver grain

hedge new crop

deferred delivery contract

lock-in the basis

Question 3

what is done in a weak price wide basis scenerio?

Answer 3

store grain

wait for basis to narrow

Question 4

what is done in a weak price narrow basis scenerio?

Answer 4

deliver cash grain and buy long futures or a call option

lock in basis (contract)

deferred pricing contract