Structuring Minimum Price Contracts with Short-Dated New Crop Options

Advantages Include Lower Time Value, Lower Premiums

While Minimum Price Contracts (MPCs) enable corn, wheat and soybean producers to lock in a minimum price for the production they commit to deliver, while still allowing them to benefit from higher prices that could occur subsequent to the sale, until now, the primary barrier to wider producer usage of MPCs has been the cost of the option that is passed on to the producer, much of which is the time value cost for longer expiration options. CME Group's Short-Dated New Crop (SDNC) options for structuring MPCs compared to standard options offer lower time value, and consequently, lower premiums.

For producers seeking protection for specific portions of the growing season, for example, through planting or pollination, SDNC options may provide a hedge during the life of the option as effective as one with standard options, but at a more attractive price.

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