A Farmer Stores His Fall Harvest of Corn and Sells

A farmer stores his fall harvest of corn and sells corn futures for March delivery at $7.50 per bushel. In March the spot price of corn is $7.20 per bushel. Which of the following is correct?

A) The farmer is obligated to deliver corn to the futures buyer at $7.20.
B) The farmer has locked in an effective price of $7.50 per bushel.
C) The farmer would have been better off without the futures contract.
D) The farmer will receive $7.35 per bushel which is the average of the spot and futures prices.

Correct Answer:

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