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Ledger Provision in Hog Marketing Contracts

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Abstract
Some long-term marketing contracts in the North American hog sector provide for price-dependent loan agreements at low rates. We show that these provisions linking pricing with financing are hybrids between forward rate agreements and commodity options. This observation presents approaches for valuing the stipulations. We suggest that the ledger arrangement is transaction-cost efficient, especially for a packer with a natural partial pass-through hedge from retail market positions.

Suggested Citation

  • David A. Hennessy & Donald Lien, 2003. "Ledger Provision in Hog Marketing Contracts," Center for Agricultural and Rural Development (CARD) Publications 03-wp336, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:03-wp336
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    References listed on IDEAS

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    1. Fudenberg, Drew & Holmstrom, Bengt & Milgrom, Paul, 1990. "Short-term contracts and long-term agency relationships," Journal of Economic Theory, Elsevier, vol. 51(1), pages 1-31, June.
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    7. Miltersen, Kristian R. & Schwartz, Eduardo S., 1998. "Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yields and Interest Rates," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(1), pages 33-59, March.
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    11. repec:bla:etrans:v:9:y:2001:i:1:p:1-27 is not listed on IDEAS
    12. James Unterschultz & Frank Novak & Donald Bresee & Stephen Koontz, 1998. "Design, pricing, and returns of short‐term hog marketing window contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 18(6), pages 723-742, September.
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    Cited by:

    1. Lien, Donald & Hennessy, David A., 2005. "Evaluating the Saskatchewan Short-Term Hog Loan Program," Staff General Research Papers Archive 12254, Iowa State University, Department of Economics.

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