Archer Daniels Midland (ADM) projects that they need to buy five million bushels of corn...
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Finance
Archer Daniels Midland (ADM) projects that they need to buy five million bushels of corn in June for the production of ethanol that month. Suppose that today is in February and ADM is planning ahead for corn it will need to buy in June. Assume it is too costly or impractical to buy corn today and store it. Which of the following are features of the hedging strategy that ADM should adopt? Note: corn futures have contract months of March, May, July, September, and December. Corn futures are settled by delivery. Each contract is for 5,000 bu.
A. Close out the hedge in June after purchasing the corn in the spot market. B. Take a long position in corn futures. C. Close out the hedge in July after purchasing the corn in the spot market. D. Take a short position in corn futures. E. Use June contracts. F. Use July contracts.
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