LEDGER PROVISION IN HOG MARKETING CONTRACTS

Some long-term marketing contracts in the North American hog sector provide for price-dependent loan agreements at low rates. We show that these provisions linking pricing with financing are hybrids between forward rate agreements and commodity options. This observation presents approaches for valuing the stipulations. We suggest that the ledger arrangement is transaction-cost efficient, especially for a packer with a natural partial pass-through hedge from retail market positions.


Issue Date:
2003
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/18337
Total Pages:
13
Series Statement:
CARD Working Paper 03-WP 336




 Record created 2017-04-01, last modified 2018-01-22

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