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.

BREAKING DOWN '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. Seller's Option

    The right of a forward contract seller to choose some of the ...
  2. Seller's Call

    An agreement between a buyer and a seller for a specific grade ...
  3. Delivery Price

    The financial value of the conveyance of the underlying commodities ...
  4. Current Delivery

    A type of futures contract that requires the delivery of the ...
  5. Cash Contract

    A financial arrangement that requires delivery of a particular ...
  6. Account Minimum

    The minimum balance required to be maintained in an investment ...
Related Articles
  1. Professionals

    Alternative Minimum Tax

    Alternative Minimum Tax
  2. Professionals

    Forward Markets and Contracts: Settlement Procedures

    CFA Level 1 - Forward Markets and Contracts: Settlement Procedures. Learn the differences between being long or short in a forward contract. Also contrasts how physical and cash deliveries are ...
  3. Term

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  4. Investing Basics

    How To Invest In Commodities

    Find out which futures, options or funds will be your perfect commodity portfolio fit.
  5. Professionals

    Terminating a Forward Contract Prior to Expiration

    CFA Level 1 - Terminating a Forward Contract Prior to Expiration. Learn how to terminate your position in a forward contract through use of an offset. Discusses default risk upon terminating ...
  6. Personal Finance

    Why Minimum Wage Is a Kingmaking Issue in Elections

    Minimum wage is an essential issue for presidential candidates in the lead-up to the 2016 election. We look at the reasons why.
  7. Insurance

    Futures Fundamentals: Characteristics

    In the futures market, margin has a definition distinct from its definition in the stock market, where margin is the use of borrowed money to purchase securities. In the futures market, margin ...
  8. Investing Basics

    Understanding the Commodity Market

    There are currently 50 physical and virtual commodity markets worldwide where almost 100 primary commodities trade through the exchange of ownership rights.
  9. Brokers

    E*Trade Brokerage: Account Types and Minimum Deposits

    E*Trade has a $500 minimum for opening new brokerage accounts. There is no minimum for retirement accounts. Access to better tools and commissions is a function of trading activity, not account ...
  10. Professionals

    Offsetting Contracts, Settlements And Delivery

    Offsetting Contracts, Settlements And Delivery
RELATED FAQS
  1. What is the difference between forward and futures contracts?

    Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell ... Read Answer >>
  2. Which states have the lowest minimum wage?

    Learn which two states share the lowest state minimum wage and are also the only two that sit below the required federal ... Read Answer >>
  3. What is the difference between an options contract and a futures contract?

    Both futures and options trading are considered advanced forms of market trading, and require additional training or the ... Read Answer >>
  4. What is the minimum amount of money that I can invest in a mutual fund?

    Learn about investing in mutual funds even with a smaller initial investment; there are many funds available to investors ... Read Answer >>
  5. What are managed futures?

    Managed futures are futures positions entered into by professional money managers, known as commodity trading advisors, on ... Read Answer >>
  6. What does it mean to take delivery of a derivative contract?

    Find out more about derivative contracts and what it means when the holders of derivative contracts take delivery of the ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center