Hedging Example (continued)

The producer would have experienced a $5000 additional cost if he did not buy futures contracts. The net result of this hedge is that the producer has eliminated the potential loss in profits by buying the futures contract: In essence the producer has actually netted $1000.

The producer would have experienced a $5000 additional cost if he did not buy futures contracts. The net result of this hedge is that the producer has eliminated the potential loss in profits by buying the futures contract: In essence the producer has actually netted $1000.