WHAT IS ‘Minimum Price Contract’
A minimum price contract is a forward contract that guarantees the seller a minimum price at delivery. This type of contract is used with commodities to protect producers from price fluctuations in the market.
Minimum price contracts are commonly used in agricultural sales, such as in the sale of grain. This is in part because agricultural products can spoil and lose their value if not sold in a timely manner. With a minimum price contract, a producer can determine how much of their product they’ll need to store or unload in order to make good on deliveries and receive an acceptable price for their products.
BREAKING DOWN ‘Minimum Price Contract’
A minimum price contract specifies the quantity, minimum price and delivery period for the specified commodity. One advantage to the seller is that minimum price contracts generally specify a time period during which the seller may opt to sell the product at a price above the set minimum in order to take advantage of higher prices in…