Forward Contracts and Basis Contracts

Selling grain for later delivery can lock different pieces of the price. A forward cash contract and a basis contract are two common shapes. People mention them together, and they do not leave you with the same risk. Mistakes that show up across pricing choices are collected at https://goodsandgrain.trade/grain-contract-pricing-mistakes. This comparison is narrower: what each contract freezes, and what it leaves open.

What a forward contract freezes

A forward cash contract sets a cash price, or a clear way to compute one, for a quantity in a stated window. In the simple form, you and the buyer agree on a price per bushel for a delivery month, subject to grade discounts in the contract. For those bushels you are done watching a later futures move and a later basis move. You have also given up a gain if the cash market rises after you sign.

Read the delivery window, the moisture rule, and what happens if you cannot deliver. A price you cannot perform against is not a finished plan. Hedge ideas that sit beside flat-price sales are introduced at https://goodsandgrain.trade/hedging-basics-small-grain-producer. A forward sale is not itself a position on an exchange, though the buyer may hedge after buying from you.

What a basis contract leaves open

A basis contract typically locks the relationship to a named futures month and leaves another piece to be set later. Names and mechanics differ by buyer. Some lock basis and let you pick the day the futures reference is set. The shared idea is that one piece is fixed and the other is still a timing choice. Basis as a term is explained at https://goodsandgrain.trade/what-is-basis-in-grain-markets.

This shape can suit a seller who likes today's local basis and not today's futures level. The risk you still hold is the piece you did not lock. If basis is fixed and futures later fall, the cash price you receive falls with them. If you waited on basis and it weakens before you set it, you lose on that piece instead. Neither outcome is a surprise if you wrote down which column was still blank.

Deadlines do more work than slogans

The sharp line is often the deadline. Some agreements say you must set the open piece by a date. If you do not, the buyer sets it under a formula printed in the contract. That formula might be an average, one day's settlement, or another rule you already signed. Planning to pick the high is not a plan if the contract picks for you on a fixed day.

Ask who may set the price, on what notice, and against which futures close. Ask what happens when the named month is near expiry. A roll into a later month should be a written right or a written ban, not a favor you hope to get by phone in a busy week.

The bushels still have to exist

Both contracts still need grain that meets the spec. A basis contract does not soften a moisture discount. A forward contract does not create bushels if the field comes up short. Know whether you are pricing grain already in a bin or production you only expect. Pricing more than you can deliver adds crop risk on top of price risk.

Tolerances, the place of weighing, and the discount table belong in the same reading as the price clause. Sellers get hurt by treating the price paragraph as the whole document. If a sentence is unclear, ask before harvest makes a rushed reading feel necessary. A lender who has a claim on the crop may also need to see the contract. That is a practical step, not a footnote.

Two columns on a sheet of paper

Write the forward offer in one column: cash price, delivery window, discounts. Write the basis offer in the other: which piece is locked, which is open, the deadline, and who sets the open piece. Then put the risk that remains into one sentence per column. If you cannot write the sentence, you do not understand the form yet.

Neither column wins every year. Fit depends on storage, bills that come due, and how much price movement you can carry. A merchandiser or advisor who can see the whole operation is the person to judge a specific form. This is a comparison of structures, not a recommendation to sign either one.

Frequently asked questions

Does a basis contract lock my cash price?

Usually it locks only one piece and leaves the rest open. The final cash price still moves with whatever you have not set.

Is a forward contract the same as a futures hedge?

No. A forward contract is a sale to a commercial buyer. A futures hedge is a position on an exchange. The buyer may hedge after contracting with you. You have not automatically done so.

Which clause should I find first?

Find the deadline and the rule for who sets any price still open. A friendly basis with a harsh deadline can still surprise you.