AFM Agricultural Marketing & Commodity Markets 2

Question 1

A corn farmer who sells corn futures contracts to protect against a price decline before harvest is executing a:

Accepted Answer

Short hedge

Answer

Long hedge

Answer

Speculative long position

Answer

Inter-commodity spread

Question 2

When the basis is described as 'stronger than expected,' this means:

Accepted Answer

Cash prices rose relative to futures prices, making the basis less negative

Answer

Cash prices fell more sharply than futures prices during the period

Answer

Futures prices increased more rapidly than local cash prices

Answer

Both cash and futures prices declined by exactly the same amount

Question 3

A basis contract benefits a grain producer primarily by:

Accepted Answer

Fixing the basis level while leaving the futures price component open for later pricing

Answer

Locking in both the cash price and futures price simultaneously at signing

Answer

Guaranteeing delivery obligations without specifying any price terms

Answer

Transferring commodity title to the elevator immediately while deferring payment

Question 4

A put option in agricultural markets gives the buyer the right to:

Accepted Answer

Sell a futures contract at the specified strike price

Answer

Purchase a futures contract at the specified strike price

Answer

Obligate the seller to accept grain delivery at the current market price

Answer

Lock in a specific basis level for a future grain delivery

Question 5

Local cash grain prices at a country elevator are primarily determined by:

Accepted Answer

The relevant futures market price adjusted for the local basis

Answer

Federal loan rates and price support levels established by farm legislation

Answer

The average cost of production for farmers in the surrounding county

Answer

Weekly export sales figures reported by the USDA Foreign Agricultural Service

Question 6

In commodity markets, 'full carry' refers to:

Accepted Answer

The total cost of storing a commodity, including interest, storage fees, and insurance

Answer

The physical trucking cost of moving grain from the farm to a terminal elevator

Answer

The markup charged by a grain elevator above the futures price for handling

Answer

The rail transportation rate from a country elevator to an export terminal

Question 7

'Convergence' in futures markets describes the phenomenon where:

Accepted Answer

Cash and futures prices come together as a futures contract approaches its expiration

Answer

Multiple commodity exchanges adopt identical contract specifications

Answer

Domestic and international prices for a commodity align through trade flows

Answer

Prices across multiple futures delivery months equalize through spreading activity