How would an investor gain a profit on this?

This has to do with futures.





A farmer agrees to sell 10,000 bushels of wheat to a bread maker for $4/share in February, in which they both agree to a specified date in July to enact the transaction.





July arrives and now the price of a bushel is $5. So now the bread maker has to pay the wheat farmer what? Would the bread maker pay $40,000 for the bushels and then resell those bushels at current market value of $50,000, thus gaining a profit of $10k?





According to text, the bread maker pays $50k, why!?|||The bread maker could close out his futures contract, which gained $10,000 in value, then buy bread in the spot market for $50,000. The bread maker gained a profit from the futures contracts. The bread maker agreed to buy at $4 on a certain date, then later agreed to sell at $5 on the same date, so he wouldn't be sending or receiving anything (the exchange matches both futures contracts together so there is no need for delivery and the farmer would make delivery of the 10,000 bushels to someone else who needed it). The exchange matches long position (buy) and short positions (sell) together, so the original two traders in the beginning may not be matched together if one of them closes out their position. Delivery is a pain in the *** so it is easier to just close out your position and buy or sell in the spot market.