Wonderful Bakeries contracted to deliver bread to Lobjaws Foods in mid

Wonderful Bakeries contracted to deliver bread to Lobjaws Foods in mid

Wonderful Bakeries contracted to deliver bread to Lobjaws Foods in mid-August. The price for bread would lock in a great margin over the cost of flour, based on the current September futures price of $6.75 and the usual basis of $.25 under September and the current exchange rate of .97. The problem is that they dont have the flour on hand today and wont be able to buy it until late July. The amount of flour they require is the equivalent of 125,000 bu of wheat.1. What is Wonderfuls price risk between now and July under these circumstances?2. What will be the effect on Wonderfuls P&L if September futures rise to $8.00 by late July?3. What will be the effect on Wonderfuls P&L if September futures fall to $5.00 by late July?4. How would Wonderful hedge long or short? How many contracts to be fully hedged?5. Set up the T-account to show the effects on their price in both situations above with and without the hedge.6. If the initial/maintenance margin is $2000/contract, what would be Wonderfuls margin contributions in both cases?7. If Wonderful wanted to hedge its exchange rate risk, would they be long or short the Canadian dollar? How many contracts?Rancher Dancer has 1000 head of cattle on feed that will be ready for market in April at about 1300 lbs each. His cost is $120/cwt. and June futures are trading at $126. Basis is normally $2 under the June contract in April.1. What is Dancers price risk on the cattle between now and April?2. What will be his profit on the un-hedged cattle if June futures go to $136 in April?3. What will his profit be if June futures drop to $106?4. How would Dancer hedge to protect the price on his cattle, long or short? How many contracts to be fully edged?5. Using the T account, show the transactions and the outcome of the hedge if prices rise to $136 and if they fall to $106.6. Assuming original/maintenance margin of $2500/contract, what would Dancers total margin requirements be in each case?