A Canadian farmer expects to harvest 100,000 bushels of wheat in three months. The current spot price for wheat is $8.00 per bushel, but the farmer is concerned prices might drop before harvest. The farmer can sell a futures contract for 100,000 bushels of wheat for delivery in three months at $7.80 per bushel. If, at harvest, the spot price for wheat is $7.50 per bushel, what is the net revenue per bushel realized by the farmer (ignoring commissions)?

Question: A Canadian farmer expects to harvest 100,000 bushels of wheat in three months. The current spot price for wheat is $8.00 per bushel, but the farmer is concerned prices might drop before harvest. The farmer can sell a futures contract for 100,000 bushels of wheat for delivery in three months at $7.80 per bushel. If, at harvest, the spot price for wheat is $7.50 per bushel, what is the net revenue per bushel realized by the farmer (ignoring commissions)?

Answer options: ✅ $7.80

• $7.50
• $8.10
• $7.30

Correct answer: $7.80

Explanation: The farmer sells the physical wheat at the spot price of $7.50 per bushel. The farmer also profits from the futures contract by selling it at $7.80 and effectively buying it back at $7.50 (or offsetting it with actual physical sales), so there's a gain of $0.30 per bushel on the futures. Therefore, the net revenue is $7.50 + $0.30 = $7.80.