MRKT 325 Lecture Notes - Lecture 5: Advance Payment, Forward Price, Futures Exchange
Document Summary
Module 2 (a: marketing with cash-based contracts, definition and general idea, types of contracts. Readings: commodity marketing , by chafin and hoepner, chapter 2 marketing tools (pages 25-40 and 49-50, tools to manage price risk in grain marketing , patterson and makus (article, handouts (posted on canvas) Buyers and sellers choose terms as long as both parties agree unlike futures contract where everything but price is even in contract. Cash-based contracts more flexible as far as terms of the contract. Cash-based contracts: these slides will cover the following types of contracts. Tested over only first 6: cash contract (cash sale) 2) forward contract: hedge to arrive (hta) contract, basis contract, minimum price contract, minimum-maximum price contract will be discussed in class, average price contract storage contract. 8: deferred price contract, deferred payment contract just fyi. Futures price and basis are not negotiated separately. Example: on may 14, a corn producer uses a forward contract to sell.
