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A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months....

A cattle farmer expects to have 120,000 pounds of live cattle to sell in three months. The live-cattle futures contract in the Chicago mercantile exchange is for the deliver of 40,000 pounds of cattle. How can the farmer use the contract for hedging? From the farmers point of viewpoint, what are the pros and cons of hedging?

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Answer:

Unhedged Scenario

Hedged Scenario

Advantages of hedging

Dis -advantages of hedging

jeff jeffy answered 2 months ago
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