Suppose a farmer is expecting that her crop of oranges will be ready for harvest

Question

Suppose a farmer is expecting that her crop of oranges will be ready for

harvest and sale as 150,000 pounds of orange juice in 3

months time. Suppose each orange juice futures contract is for 15,000

pounds of orange juice, and the current futures price is F0=118.65 cents-per-pound.

Assuming that the farmer has enough cash liquidity to fund

any margin calls, what is the risk-free price that she can guarantee herself.

Please submit your answer in cents-per-pound rounded to two decimal places. So for example, if your answer is 123.456, then you should submit an answer of 123.47.

Explanation / Answer

The current cents per pound is 118.65. For 15,000 pounds of orange juice ( 1 contract), the price will be 118.65*15,000 = 1779750 cents = $17,797.50

So she can produce a total of 150,000 pounds of orange juice and hence she can get 10 futures contract of size 15,000 each (150,000/15000)

So total risk-free price will be 17,797.50 *10 = $177,975.00

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