MINIMUM PRICE CONTRACT

A MINIMUM PRICE CONTRACT locks in a floor price on the grain sale and takes advantage of any 'futures' market increase after the grain is sold by buying a call option for the seller’s account.  There is an upfront premium charge for the cost of the option and a specified contract expiration date. Title of the grain is transferred upon delivery of grain if not already done so through DP. The seller selects the call option’s underlying futures month and futures exchange.  A MPC can only be written on winter wheat, spring wheat, corn, milo and soybeans.

ADVANTAGES: Allows the seller to take advantage of a potential futures price increase  at some point in the future; no storage charge or risk; basis is set; full minimum price is paid upon delivery of the grain (cash price minus MPC premium charge) and this will be the least amount paid; no additional charges if the market goes lower.

DISADVANTAGES: Basis is set, so the seller cannot take advantage of any basis gain during the life of the MPC and an up-front premium charge. A MPC can be virtually duplicated by the selling the grain to DMG and then the seller purchasing a "call option" from their commodities broker.