Grain Contracting Strategies to Induce Delivery and Performance in Volatile Markets
AbstractOne of the impacts of higher prices along with greater volatility in futures and basis is that there is pressure for an escalation in cash contracting for grain. This volatility has resulted in an unprecedented level of contracting with growers for specific purchases in recent years. There is a wide array of cash contracts with varying terms. Beyond that array, there is also a growing realization of growers not delivering on contracts, in part due to escalation in post-contract prices. This realization is evolving as a major strategic issue for buyers and the marketing system, particularly as buyers seek to use such contracting strategies as an element of risk mitigation. There are three purposes of this article. First is to provide a broad survey of contract terms used in grain contracting with growers. An emphasis of these terms relates to options and mechanisms used to entice performance. Second, we illustrate some issues in contracting of some of the grains (durum, malting barley) in the upper Midwest. Third, we show some of the common contract clauses being adapted in these contracts. Finally, we summarize these issues with respect to industry implications.
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Bibliographic InfoPaper provided by North Dakota State University, Department of Agribusiness and Applied Economics in its series Agribusiness & Applied Economics Report with number 55084.
Date of creation: May 2009
Date of revision:
Crop Production/Industries; Farm Management; Financial Economics; C15; D81; Q12;
Other versions of this item:
- Wilson, William W. & Dahl, Bruce L., 2009. "Grain Contracting Strategies to Induce Delivery and Performance in Volatile Markets," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(02), August.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
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- Wilson, William W. & Bruce, Dahl, 2010. "Contracting for Canola in the Great Plains States," Agribusiness & Applied Economics Report 95751, North Dakota State University, Department of Agribusiness and Applied Economics.
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