Minimum Price Contract
Capture the rally while protecting the downside
What is the Minimum Price contract?
A Minimum Price contract provides the protection of a guaranteed minimum price, while keeping you in the market to participate in a strong futures rally.
How does the Minimum Price contract work?
- You contract a specific quantity and quality of grain for a guaranteed minimum price
- Upon delivery you receive payment for your minimum price
- Should the futures market go up, this contract allows you to re-price at any time prior to the expiration of the contract
What are the advantages of the Minimum Price contract?
- You have downside protection in futures, while preserving the opportunity to benefit from higher prices
- Provides cash flow by paying the minimum price payment when delivery takes place
- You can deliver your grain now, but still have time in the marketplace to establish a final price
- Can be minimal tonnes from your total production, with 5000bu being the starting commitment
- You have established a floor price should the market go down
- It removes stress, frustration, and risk from marketing your grain
- Premiums are deducted from the contract price, and do not require up-front payment
What are the disadvantages of the Minimum Price contract?
- Prices may not improve before option expiration, resulting in net zero return for premiums paid
- Prices may rise and fall by option expiration, also resulting in no gain for premium paid
- The contract allows for pricing prior to option expiration, but pricing occurs only once
- Premiums for strike price may be expensive during volatile markets
- This contract requires a 5,000-bushel minimum at sign up
What should you know?
- You may re-price only once, so having a marketing plan and a futures target is beneficial to your decision
- You may not capture all of the gains during a volatile market
- Your Young Farms representative can help you monitor your re-pricing goals and provide you with updates
- There is a cost for the Minimum Price contract
- Prices may not improve, or they may not improve until after the contract pricing deadline
- The price may rise, and then fall before you re-price the contract. In such situations, the premium may be lost
When is it used? -
The Minimum Price contract is a great risk management strategy to use when you want to protect a favourable cash price, while still having an opportunity to benefit should future prices increase.
It may also be useful when you need to deliver grain now for storage or logistical reasons, but still want more time in the market to price
If you are interested in this type of contract please set up an appointment with Tammy Young at 519-366-2749