Question

Before buying raw wool from its members (i.e., sheep farmers), an Australian wool cooperative wants to hedge the price of their output product. On June 15, the local price of fine wool is AU$ 9.85/kg and the October fine wool futures trades at the ASX (Australian Securities Exchange) at AU$ 9.90/kg. On September 15, the cooperative lifts the hedge at a futures price of AU$ 10.85/kg and sells their fine wool on the local market at a price of AU$ 10.65/kg. Establish the hedge. What final net price does the cooperative receive for its wool on September 15? Did the basis strengthen or weaken? Was the change in the basis in the cooperative’s favor? What was the absolute price change in the cash market? By how much did the basis change? Compare.

Date	Cash Market	Futures Market	Basis
	Expected fine wool cash price for September 15 is AU$......./kg

Answer 1