Seth McDonald Grows Corn

Multiple Choice

Seth McDonald grows corn. In May, he decides to sell 3 contracts, about half of his expected crop, for December delivery. The contract price is $3.65 per bushel and the contract size is 5,000 bushels. Shortly before the delivery date, corn is selling in the spot (immediate delivery) market for $3.85 per bushel.

A) Seth will simply let the contract expire and sell his corn in the spot market.
B) Seth can protect his profit by buying an offsetting contract.
C) Seth has an opportunity loss of $3,000 because he must deliver corn at the lower price.
D) Seth can hold on to his corn for several months and hope that the price to rises enough to offset his loss.