What is the profit-maximizing futures trading strategy for


The SOYKING Corporation processes soybeans into soyoil and soymeal. Each bushel ofsoybeans (60 lbs/bushel) is converted into 11 lbs of soyoil, 47 lbs of soymeal and 2 lbs ofwater. The company buys soybeans every month and sells the production of soyoil andsoymeal over the following 2 months in a continuous cycle (water is not sold). If theproduction in not sold in the next month, it is stored in the company's storage facility.

It is September 7th and the company is figuring out its hedged buying and sellingstrategy for the November production month. Assume that the company will buy (takedelivery) of the soybeans at the November futures price. It then has to decide whetherthe production of soyoil and soymeal should be sold in December or January.

Due to storage & transportation constraints, the company sells both in the same month. Basedon the company's processing capacity and demand from clients, the company has decidedto process 15 million bushels of soybeans in November. Answer the questions belowusing the contract and price information below. Round off the number of contractscalculated in your answer.

Each soybean contract calls for the delivery of 5,000 bushels (bu). The size of thesoyoil contract is 60,000 lbs and the same for the soymeal contract is 100 tons (2000 lbsper ton).

The futures prices are as follows:Delivery Month SOYBEANS SOYOIL SOYMEAL(cents/bushel) (cents/lb) ($/ton)November 905 December 37.9 256.0 January 920 38.5 254.4

a) Calculate the revenue from selling the production in December?

b) What is the profit-maximizing futures trading strategy for SOYKING. When shouldthe production from November be sold?

c) What is the gain in profit in b) over the second-best option?

2) Suppose the 6 month futures price for the Swiss franc is $0.6600 ($/franc). The currentspot price is $0.6450.

a) If the futures and spot prices are fairly priced (no arbitrage), then what is the USSwissinterest rate difference over the next 6 months?

b) If the US and Swiss interest rates change to 2% and 2.5%, can you make risklessmoney? If so, how much per contract (contract size is 125,000 franc).

c) Define the mechanics of the complete strategy for b) above.

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Business Management: What is the profit-maximizing futures trading strategy for
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