A Forward Price Contract is when the seller agrees to deliver grain a specified future date at a specific flat price. The quantity, price and delivery period are established in a contract.
Ÿ Quantity, price and delivery are set based on the seller’s pricing goals and delivery needs.
Ÿ Seller can take advantage of good prices in the market to set contract and avoid the typically low prices available at harvest time.
Ÿ Seller can lock in price before crop is planted or harvested.
Ÿ Allows seller the ability to sell and deliver grain at a time when transportation is generally more available.
Ÿ Risk of price decline is eliminated, however, seller cannot benefit from future market rallies.
Ÿ Grain must be delivered as contracted regardless of yield or quality concerns.