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On Aug. 15 a feed barley producer feels that $300/t is a good price to sell the remainder of the
unpriced feed barley he/she is about to harvest since the December feed barley futures contract is
trading at $300/t on the ICE. The producer sells five (5) December futures contracts or 100t (5 X
20t = 100t) to equally offset the expected long cash position. On November 20 the local cash
price is $360/t. The producer sells the feed barley for cash and buys back the futures at $365/t.
What is the resulting final price realized and why is it different from the target price of $300/t?
Solution
The final realized price is $365/t. This is due to the reason that the producer has brought the
future contract to sell at $365/t. This way the producer can sell the barely at the rate of $365/t. A
rise in price may be due to the demand or climate factor.

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On Aug. 15 a feed barley producer feels that $300t is a good price .pdf

  • 1. On Aug. 15 a feed barley producer feels that $300/t is a good price to sell the remainder of the unpriced feed barley he/she is about to harvest since the December feed barley futures contract is trading at $300/t on the ICE. The producer sells five (5) December futures contracts or 100t (5 X 20t = 100t) to equally offset the expected long cash position. On November 20 the local cash price is $360/t. The producer sells the feed barley for cash and buys back the futures at $365/t. What is the resulting final price realized and why is it different from the target price of $300/t? Solution The final realized price is $365/t. This is due to the reason that the producer has brought the future contract to sell at $365/t. This way the producer can sell the barely at the rate of $365/t. A rise in price may be due to the demand or climate factor.