The grain marketing contract series is designed to help Tennessee producers build more informed and effective marketing plans. The videos provide an overview of the common types of grain marketing contracts with UT Extension specialists and grain buyers explaining how each contract works, when to consider using them, and key risks and benefits. Whether you’re new to marketing or looking to improve your strategy, these videos offer practical insights to support development of your grain marketing plan.
Reminder: For any marketing contract, details should match farm records. For example, the name or legal entity and USDA FSA farm number(s) on any marketing contracts should match the payment ticket information and crop insurance records.
For assistance in developing a grain marketing plan, contact your UT Extension Farm Management Specialist.
Thank you to our partners who provided content and video locations for the development of this educational video.
Disclaimer: The inclusion of any grain buyer or company in this video is for educational purposes only and does not imply endorsement or recommendation by UT Extension or the University of Tennessee.
Grain Marketing Contracts
Understanding Grain Marketing Terminology and Contracts
In this video, a UT Extension specialist introduces the basics of grain marketing contracts and key terminology. Learn important terms you need to understand and why knowing the language of grain marketing is essential to making informed decisions. This video serves as the starting point in our grain marketing contract series, designed to help Tennessee producers build more informed and effective marketing plans.
Grain Marketing Spot Sales
Grain Marketing Forward Contracts
In this video, UT Extension specialists explain forward contracts in grain marketing. Learn how forward contracts allow you to lock in a price for your grain ahead of delivery, manage price risk, and plan more effectively for your operation.
Definition: An agreement requiring the farmer to deliver a specific quantity and quality of a crop to the elevator or purchaser at a specified time and location for a previously agreed price.
Example: In March, a farmer wants to presell 10,000 bushels of his projected corn production (number 2 yellow corn – minimum quality specification) for delivery to his local elevator in October. The December corn futures contract is trading at $5.00, and the elevator’s harvest basis is +$0.25. The elevators’ fees and transaction costs for writing the cash forward contract are $0.05. The cash forward contract price would be $5.20 ($5.00 + $0.25 – $0.05). By signing the cash forward contract the farmer agrees to deliver (and the elevator agrees to accept) 10,000 bushels of number 2 yellow corn to the elevator in October for $5.20 per bushel. If the futures price or basis changes (up or down) between March and October, it will not change the cash forward price in the contract.
Grain Marketing Basis Contracts
In this video, UT Extension specialists explain basis contracts in grain marketing. Learn how a basis contract allows you to lock in the basis—the difference between your local cash price and the futures price—while leaving the futures portion of the price open. This strategy can help manage price risk, improve flexibility, and allow you to make pricing decisions when market conditions are more favorable.
Definition: The agreement establishes the basis price but not the futures price (note: cash price = futures price plus basis). The producer later selects the day on which they wish to establish the future’s price (before delivery or other time specified in the contract). At that time, the producer will receive the futures price plus or minus the previously agreed upon basis.
Basic Example: In March, a farmer wants to establish a basis price on 10,000 bushels of his projected corn production (number 2 yellow corn – minimum quality specification) for delivery to his local elevator in October. The elevator’s harvest basis is +$0.20. The elevators’ fees and transaction costs for writing the basis contract are usually incorporated into the basis price but in some circumstances may be stated in the contract. By signing the basis contract, the farmer agrees to deliver (and the elevator agrees to accept) 10,000 bushels of number 2 yellow corn to the elevator in October for a basis of $0.20 per bushel. The basis price will not change regardless of changes in basis offerings between March and October, once the basis contract is signed. The futures price (December contract in this example) could be established any time between March and October at the discretion of the farmer. The final cash price the farmer will receive will be determined when the futures price is set and will be equal to December futures price +$0.20.
Grain Marketing Hedge to Arrive Contracts
Definition: An agreement where a farmer chooses a future contract month and establishes the futures price for the crop they intend to sell. The basis is established later at the discretion of the producer. The producer’s cash price will be the futures price less the basis. Hedge-to-arrive contracts can often be rolled forward to another futures contract month. The elevator performs the hedging transaction the farmer pays a fee to cover transaction costs.
Basic Example: In March, a farmer wants to establish a futures price on 10,000 bushels of his projected corn production (number 2 yellow corn – minimum quality specification) for delivery to his local elevator in October. He signs an HTA contract with his local elevator using the December corn futures contract and locks in a futures price of $5.00. The farmer pays any fees to the elevator to cover transaction costs for writing the HTA contract.
By signing the HTA contract, the farmer agrees to deliver (and the elevator agrees to accept) 10,000 bushels of number 2 yellow corn to the elevator in October for a futures price of $5.00 per bushel. The futures price will not change regardless of changes in changes in the futures market between March and October, once the HTA contract is signed. The basis price can be established any time between March and October at the discretion of the farmer. The final cash price the farmer will receive will be determined when the basis price is set and will be equal to $5.00 +/- basis.
Grain Marketing Deferred Pricing Contracts
In this video, UT Extension specialists explain deferred pricing contracts in grain marketing. Learn how a deferred pricing contract allows you to deliver your grain to a buyer while postponing the final price decision to a later date. This strategy can provide flexibility in marketing decisions, manage storage limitations, and allow you to capture potential price improvements after harvest.
Definition: An agreement in which a crop is delivered, and legal title passes to the elevator, but price is established later at the discretion of the farmer. The price to the producer on any given day is the elevator cash price less a service charge. Both the basis and futures price are set at a later time.
Example: In October, a farmer delivers 10,000 bushels of corn (number 2 yellow corn – minimum quality specification) to his local elevator in October. He signs a deferred pricing contract with the elevator. This transfers the title of the corn to the elevator but does not establish a price. The price (futures and basis) are determined at a later date at the discretion of the farmer based on current prices within in the time frame established by the contract.
Grain Marketing Minimum Price Contracts
In this video, UT Extension specialists explain minimum price contracts in grain marketing. Learn how a minimum price contract allows you to set a price floor for your grain while still keeping the opportunity to benefit from potential futures market rallies. This strategy can help manage downside price risk, protect profitability, and provide flexibility if market conditions improve.
Definition: An agreement in which a minimum sale price is established. The producer is guaranteed either the minimum sale price or a greater price based on the prevailing market price. In exchange for the minimum price guarantee, the producer must pay a fee similar in size to an option premium to the elevator or minimum contract writer. For a minimum price contract, the producer is not the options market participant, it is the elevator.
Basic Example: In March, a farmer wants to sell 10,000 bushels of number 2 yellow corn to an elevator. The current cash forward price is $5.20 for October delivery ($5.00 futures price plus $0.20 basis). The producer wants to be able to take advantage if prices increase between March and October, but he does not want to take a price lower than $4.95. The farmer decides to sign a minimum price contract with the elevator for $4.95 ($5.20 cash forward price less a $0.25 fee paid to the elevator).
The elevator purchases a call option with a strike price of $5.25 per bushel (the strike price can be selected at different price points) for a premium of $0.20 per bushel. If the market price of corn stays below $5.20, the farmer receives $4.95 per bushel ($5.20 – $0.25). If the market price rises above $5.25 (the selected strike price), the farmer has a one-time decision to accept the higher price equal to $4.95 + current December (or the specified underlying contract) futures price less $5.25. For example, if the December contract is at $5.75 the farmer would receive $4.95 + $0.50 ($5.75 – $5.25) or $5.45.
The minimum price contract provides a price floor for the farmer while also allowing them to potentially benefit from favorable market movements. Ideally the farmer selects a minimum price at or above his estimated cost of production.
Grain Marketing Minimum/Maximum Contracts
Definition: An agreement where a seller sets both a minimum and maximum price for grain. This allows the seller to guarantee a minimum price while still having the opportunity to benefit from a higher market price within the specified range. The ceiling lowers the fees through reduced premium costs. It’s like having a floor price with some upside potential, but with a ceiling on how high the price can climb.
Basic Example: In March, a farmer wants to sell 10,000 bushels of number 2 yellow corn to an elevator. The current cash forward price is $5.20 for October delivery ($5.00 futures price plus $0.20 basis). The producer wants to be able to take advantage if prices increase between March and October, but he does not want to take a price lower than $5.00. The farmer wants to limit his transaction costs to $0.20 per bushel and is willing to forgo some upside market potential to accomplish this. The farmer decides to sign a minimum-maximum price contract with the elevator for a $5.00 price floor and a $5.70 price ceiling.
The elevator purchases a call option with a strike price of $5.00 per bushel for a premium of $0.30 per bushel and sells a call option for $5.90 per bushel for $0.15. The elevator charges $0.05 for the transactions. This results in the net fees to the farmer of $0.20 ($0.30+$0.05 – $0.15).
If the market price of corn stays below $5.20, the farmer receives $5.00 per bushel ($5.20 – $0.20). If the market price rises above $5.20, the farmer has a one-time decision to accept the higher price equal to $5.00 + current December futures price less $5.20. For example, if the December contract is $6.00 the farmer would receive $5.00 + $0.80 ($6.00 – $5.20) or $5.80. However, if the market price went to $6.50 the farmer would receive only $5.90 (the price ceiling.
The minimum price contract provides a price floor for the farmer. The maximum price caps the amount the farmer can receive regardless of how high prices go. Ideally the farmer selects a minimum price at or above his estimated cost of production with the max upside profit.
Grain Marketing Production Contracts
In this video, UT Extension specialists explain production contracts in grain marketing. Learn how a production contract is an agreement where a buyer specifies production practices and agrees to purchase the harvested grain under predetermined terms. This strategy can help manage production and price risk, provide a guaranteed market for your crop, and clarify expectations between producers and buyers.