Farmer Tom Hedges anticipates taking 100,000 bushels of oats to the market in three months. The current cash price for oats is $2.15. He can sell a three- month futures contract for oats at $2.20. He decides to sell 10 5,000-bushel futures contracts at that price. Assume that in three months when Farmer Hedges takes the oats to market and also closes out the futures contracts (buys them back), the price of oats has tumbled to $2.03

a.What is his total loss in value over the three months on the actual oats he produced and took to market?

b.How much did his hedge in the futures market generate in gains?

c.What is the overall net loss considering the answer in part a and the partial
hedge in part b

a.total loss=($2.15-$2.03)*100000=$12000

b.Hedge=($2.20-$2.03)*50000=$8500
c.overall net loss=$12000-$8500=$3500

To answer these questions, we need to calculate the loss in value on the actual oats, the gains from the hedge in the futures market, and the overall net loss considering both factors.

a. To calculate the loss in value on the actual oats:
- The anticipated quantity of oats to be taken to the market is 100,000 bushels.
- The current cash price for oats is $2.15.
- The price of oats at the end of three months is $2.03.

The loss in value on the actual oats can be calculated as:
Loss = (Current price - Future price) * Quantity
= ($2.03 - $2.15) * 100,000
= -$0.12 * 100,000
= -$12,000

Therefore, Farmer Hedges' total loss in value over the three months on the actual oats he produced and took to market is $12,000.

b. To calculate the gains from the hedge in the futures market:
- Farmer Hedges sold 10 5,000-bushel futures contracts at a price of $2.20.
- The price of oats at the end of three months is $2.03.

The gains from the hedge can be calculated as:
Gains = (Future price - Initial price) * Quantity
= ($2.03 - $2.20) * (10 * 5,000)
= -$0.17 * 50,000
= -$8,500

Therefore, Farmer Hedges' hedge in the futures market generated gains of $8,500.

c. To calculate the overall net loss considering the loss in value on the actual oats and the gains from the hedge:
Overall Net Loss = Loss in value on the actual oats - Gains from the hedge
= -$12,000 - (-$8,500)
= -$12,000 + $8,500
= -$3,500

Therefore, the overall net loss considering the loss in value on the actual oats and the gains from the hedge is -$3,500.