Minimum Price Contract

AAA

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.

RELATED TERMS
  1. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  2. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  3. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  4. Delivery

    The action by which an underlying commodity, security, cash value, ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
Related Articles
  1. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  2. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  3. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  4. Economics

    Which country has the most gold?

    Learn which countries hold the most in gold reserves, and explore the reasons holding gold may be beneficial to a country's economy.
  5. Chart Advisor

    Commodities Are Pulling Chile And Brazil Lower

    Strategic investors should not only keep an eye on charts of falling commodity prices, but they should also watch the impact falling commodities are having on South American nations like Chile ...
  6. Chart Advisor

    As Oil Prices Drop, Traders Look To Lumber

    While much attention is being given to declining energy prices, it may prove strategic for active traders to shift their focus to sectors like lumber that are offering better risk/reward scenarios; ...
  7. Options & Futures

    Is short selling ethical?

    Understand the concept and practice of short selling, and examine the ethical questions that some investors raise in regard to this practice.
  8. Options & Futures

    How is it possible to trade on a stock you don't own, as is done in short selling?

    Understand how the process of short selling allows a person to sell a stock he or she doesn't technically own by borrowing on margin from a broker.
  9. Options & Futures

    What kinds of restrictions does the SEC put on short selling?

    Learn about the rules and regulations on short selling enforced by the U.S. Securities and Exchange Commission, or SEC, including the uptick rule.
  10. Options & Futures

    When short selling, how long should you hold on to a short?

    Explore the reasons for short selling and the various factors that influence how long an investor may wish to maintain a short position.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center