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  • 4.10.3-COTTON TRADING-THE ADVANTAGES OF THE GUARANTEED MINIMUM PRICE CONTRACT

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  • The advantages of the guaranteed minimum price contract

    Chapter 4 - Cotton trading - Guaranteed minimum price contracts 

     
     
    • Reduces forward price risk. In other words, if the producer does not yet have the cotton to deliver, but can sell forward at a price that is above break-even, then the producer can lock in this price rather than wait and risk a market collapse.
    • Permits a producer to set a floor price for his or her cotton, while still allowing participation in the upside price potential.
    • Allows the producer to have access to exchange-based markets without having to cope with brokers, margin calls and complex financing arrangements.