Minimum Price Contract

Definition of 'Minimum Price Contract'


A forward contract with a provision that guarantees a minimum price at delivery of the underlying agricultural commodity. A minimum price contract enables a seller to specify a minimum price for an agricultural commodity, such as grain, while still being able to take advantage of price increases in the event the market rallies. The minimum price contract specifies the quantity, minimum price and delivery period for the particular commodity, as well as the time period during which the seller has the opportunity to take advantage of rising market prices.

Investopedia explains 'Minimum Price Contract'


Minimum price contracts can be advantageous to sellers because the risk of price decline is removed, a minimum price is guaranteed and the seller is still able to profit from price rallies during the specified time period. Disadvantages of minimum price contracts include the inability to trade in and out of markets, since delivery is expected, and the associated premium incurred by the seller that can result in lower prices than the seller may have received if the commodity had been sold under a standard contract.


Filed Under: , ,

comments powered by Disqus
Hot Definitions
  1. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  2. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  3. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
  4. Yield Burning

    The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
  5. Marginal Analysis

    An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.
  6. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
Trading Center