One orange juice futures contract is on 15,000 pounds of frozen concentrate. Sup

Question

One orange juice futures contract is on 15,000 pounds of frozen concentrate. Suppose that in September 2009 a company sells a March 2011 orange juice futures conrtact for 120 cents per pound. In December 2009, the futures price is 140 cents; in December 2010, it is 110 cents; and in Feb. 2011, it is closed out at 125 cents. The company has a December year end. What is the company's profit or loss on the contract? How is it realized? What is the accounting and tax treatment of the transaction if the company is classified as (a) a hedger and (b) a speculator?

Explanation / Answer

Hi

Please see below

The price goes up during the time the company holds the contract from 120 to 125 cents per pound.

Overall the company therefore takes a loss of 15,000

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