Minimum Price Contracts establish a floor price for the grain by purchasing a call option. This gives the producer the opportunity to capitalize on futures market increases.
The producer agrees to deliver a specific quantity and quality of grain for a determined delivery period. A Minimum Price Contract sets a minimum cash price for the grain by locking in the current market price minus the cost of the call option. Call options give the buyer the right, not the obligation, to buy a specified futures contract at the strike price of the call. Call options gain value as the futures market moves higher, giving the producer an opportunity to capture higher prices.