Greg recently inherited a large, family-run farm that primarily produces grain for harvest each year.Greg has recently been researching the use of futures contracts to improve his returns on his crop each year and reduce the price risk at harvest time.Greg decides to enter into a futures contract on his grain harvest in March once the crops are in.The current futures price per bushel of grain is $290.50.By May, the price per bushel had grown to $298 per bushel.A contract calls for the delivery of 1,000 bushels of grain.
- Calculate the long position gain or loss in this scenario.
- Calculate the short position gain or loss in this scenario.
- Would yourecommend doing future contracts like this to Greg?Why, or why not?
- Explain how futures contracts can be both good and bad for someone in Greg's position.