Assume you are a feed manufacturer. It is December and you are planning the corn purchase for April. To protect against rising price, you put on a long hedge by purchasing a May Corn futures contract at $5.75 per bushel. Suppose that the basis is 5 cents under when you actually buy corn from your supplier in April.
(i) What would be the net purchase price in April if the May Corn futures price is $5.58?
Cash purchase price ____________
Gain/loss on futures position ____________
Net purchase price ____________
(ii) What would your net purchase price be if May Corn futures is $5.80 and the basis is 7 cents over when you offset your futures position in April?
Cash purchase price ____________
Gain/loss on futures position ____________
Net purchase price ____________