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Abstract

The use of currency translated average rate options is shown to be a cost effective way to hedge corn and soybean price risk in Ontario when the timing of the cash sales extends over several months. Standardized contracts incorporating the over-the-counter instrument may be developed, and could be offered as an add-on to an operating line of credit. Lower average commodity prices would result in a reduced principal repayment obligation. Overall this would also lead to improved credit risk and lower cost of capital.

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