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Ledger Provision in Hog Marketing Contracts

  • Hennessy, David A.
  • Lien, Donald

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.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/paper_10645.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10645.

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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
Handle: RePEc:isu:genres:10645
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Hall, Brian J. & Murphy, Kevin J., 2002. "Stock options for undiversified executives," Journal of Accounting and Economics, Elsevier, vol. 33(1), pages 3-42, February.
  2. Richard L. Kilmer & Anouk M. Andre & Thomas J. Stevens, 2001. "Pesticide residues and vertical integration in Florida strawberries and tomatoes," Agribusiness, John Wiley & Sons, Ltd., vol. 17(2), pages 213-226.
  3. Eric Maskin & Chenggang Xu, 2001. "Soft budget constraint theories: From centralization to the market," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 9(1), pages 1-27, March.
  4. Dickinson, David L. & Bailey, DeeVon, 2002. "Meat Traceability: Are U.S. Consumers Willing To Pay For It?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(02), December.
  5. Miltersen, Kristian R. & Schwartz, Eduardo S., 1998. "Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yields and Interest Rates," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(01), pages 33-59, March.
  6. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June.
  7. Hilliard, Jimmy E. & Reis, Jorge, 1998. "Valuation of Commodity Futures and Options under Stochastic Convenience Yields, Interest Rates, and Jump Diffusions in the Spot," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(01), pages 61-86, March.
  8. Nigel Key & William McBride, 2003. "Production Contracts and Productivity in the U.S. Hog Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 121-133.
  9. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
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