Ledger Provision in Hog Marketing Contracts
Price-dependent loan agreements at low interest rates have sometimes been included in North American hog sector long-term marketing contracts. We show that a general form of this stipulation can be viewed as a hybrid between a forward rate agreement and a bundle of commodity spot options. In some cases, the provision amounts to a commodity swap. These observations provide an approach to valuing the provision. Historical data are used to estimate expected payouts to the producer under the contract feature.
|Date of creation:||01 Jul 2003|
|Date of revision:|
|Publication status:||Published in Agricultural Finance Review, Spring 2006, vol. 66 no. 1, pp. 77-89|
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