Luke owns a large farming operation that encompasses over 5,000 acres of corn. The crop this year is abundant and will be ready for harvesting next month. Luke likes the market prices today but expects the prices to decline over the next month as the supply of corn increases. Which one of the following positions should Luke take to hedge his corn crop?
A)sell in the spot market today
B)buy in the spot market today
C)take a long futures position
D)take a short futures position
E)sell in the spot market today and take a long position in the futures market

Question

Quizplus · Accepted Answer

Taking a short futures position will allow Luke to lock in the current market price for his anticipated corn crop, regardless of whether the market price drops in the future. This will protect him from potential losses due to the price decline.

Luke Owns a Large Farming Operation That Encompasses Over 5,000