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Ledger Provision in Hog Marketing Contracts

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  • Hennessy, David A.
  • Lien, Donald

Abstract

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.

Suggested Citation

  • Hennessy, David A. & Lien, Donald, 2003. "Ledger Provision in Hog Marketing Contracts," Staff General Research Papers Archive 10645, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:10645
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    References listed on IDEAS

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    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. James Unterschultz & Frank Novak & Donald Bresee & Stephen Koontz, 1998. "Design, pricing, and returns of short‐term hog marketing window contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 18(6), pages 723-742, September.
    10. 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.
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    Cited by:

    1. Lien, Donald & Hennessy, David A., 2005. "Evaluating the Saskatchewan Short-Term Hog Loan Program," Staff General Research Papers Archive 12254, Iowa State University, Department of Economics.

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