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Minimum Price Contract

What does Minimum Price Contract mean?

A minimum price contract is a futures contract with a price floor regardless of market price movements upon delivery of the underlying commodity.

Futures Knowledge Explains Minimum Price Contract

Minimum Price Contract is a hybrid commercial forward contract for agricultural products and other commodities. The contract has a provision guaranteeing the person making delivery a minimum price for the product. The minimum price is fixed in order to reduce the risk of fluctuations in the commodity's price. It protects the farmers, producers and sellers from losses due to erratic price behavior at the time of delivery. This has become much more common with the introduction of exchange-traded options on futures contracts, which permit buyers to hedge the price risks associated with the underlying assets.

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