A sugarcane farmer is expecting to sell 200MT of cane in after 3 months, next May.
In the
normal course the price of sugarcane remains at Rs 80 per quintal. As bumper crop is
expected he is worried about a fall in prices. Future contracts of sugarcane are not available.
However future in sugar is available , 3-m contract of 10MT are selling at Rs 8000/MT.
How can he hedge his position using futures in sugar assuming the price of sugar and
sugarcane are perfectly correlated? Show the results if there is 10% increase or decrease
in the price of sugar
The following futures are available
2 months future on sugar case Rs 180/quintal
3 months future on sugar Rs 25/kg
A sugar mill would like to hedge for gross profit margin at the above rate. What would be the strategy if they
are committed to deliver 9 tonnes of sugar in 3 months time. Assume production time as 1 month and yield
from cane as 9%.
Work out the aggregate gross profit margin when the price at the delivery date is
a. Sugar Rs 22/kg and sugarcane Rs.190/quintal
b. Sugar Rs 27/kg and sugarcane Rs 170/quintal
A farmer faces uncertainty about the quantity and price of his wheat crop under the following possible
scenarios:
Probability Price of wheat per Quantity-Kg Revenue -Rs
kg-Rs
0.6 20.00 40,000 8,00,000
0.4 30.00 30,000 9,00,000
What will his strategy be? What will be the assured revenue
