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Questions Lydia, Cassidy and Emilie are grain producers in the same area and they like to use different marketing strategies to sell their soybeans. Lydia always uses forward contracts, whereas Cassidy always uses futures contracts. On the other hand, Emilie doesn't like to use any contracts and just waits to sell her grain in the cash market whenever she decides to sell. They are all planting soybeans and they plan to sell/deliver the grain right after harvest in the fall. Today, Lydia decided to sell her soybeans in advance using a forward contract for November delivery. She sold at a forward price of $11.30/bu. Today, Cassidy also sold her soybeans in advance using the soybean futures contract for November delivery at $12.18/bu. Her expected basis for November is $0.85/bu. Finally, Emilie doesn't like to use contracts and hence she will just wait until all the grain is harvested to then sell her soybeans. (1/4) As of today, what prices should Lydia, Cassidy and Emilie expect to receive when they deliver their grain in November? Now let's fast-forward to November... It is now November 11 and they are ready to deliver their soybeans. Lydia will go ahead and deliver her grain against the forward contract. Cassidy will offset her futures contract and sell her grain in their local cash market. Since Emilie has not contracted her grain in advance, she will just sell her soybeans in their local cash market You can see below different scenarios for spot price in their local market and futures price on November 11. Scenario A: spot price - $12.75/bu, futures price = $13.60/bu Scenario B: spot price = $12.90/bu, futures price = $14.00/bu Scenario C. spot price - $12.80/bu, futures price = $13,45/bu Scenario D: spot price = $10.05/bu, futures price = $10.90/bu Scenario E: spot price - $10.20/bu, futures price = $11.15/bu Scenario F: spot price = $10.10/bu, futures price = $10.80/bu (2/4) For each scenario above, calculate the realized prices received by each farmer as they deliver their soybeans in November. Make sure to explain and/or show all your calculations clearly. (2/4) For each scenario above, calculate the realized prices received by each farmer as they deliver their soybeans in November. Make sure to explain and/or show all your calculations clearly. (3/4) For each scenario above, indicate whether (i) the futures price increased or decreased relative to the futures price today (i.e. the futures price locked in by Cassidy at the beginning of the hedges) and (ii) the realized basis on November 11 is wider or narrower (or stayed the same) compared to the expected basis for their cash market in November Note: you don't need to explain arfything here. Just say whether the futures prices increased or decreased and whether the realized basis is wider or narrower (or the same) than the expected basis. (4/4) For each scenario above, you have the futures price increasing or decreasing and the basis widening or narrowing for staying the same). Explain how and why the marketing strategy (forward contract, futures contract, or no contract) adopted by each farmer was good or bad under each scenario according to the behavior of the futures price and the basis. Note: For example, in Scenario X, the futures price increased and the basis widened. The strategy adopted by FarmerA was good in this scenario because....... The strategy adopted by Farmer was bad in this scenario because...The strategy adopted by Farmer was half-good, half-bad because

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