Fixed Price (Flat Price) Contract:
A marketing agreement between a grain producer and a grain buyer (such as an elevator, processor, or ethanol plant) in which the cash price is established at the time of contract. The agreed price includes both futures and basis.
Example:
- December corn futures = $4.50/bu
- Local basis = -$0.20/bu
Cash price = $4.50 − $0.20 = $4.30/bu
If you sign a fixed-price contract for 10,000 bushels at $4.30/bu, you have committed to deliver those bushels at that price during the specified delivery period.
Basis Contract:
A marketing agreement in which the basis is established (fixed) now, but the futures price is left open to be set later before a specified deadline.This contract must be traded in 5,000-bushel increments.
Example:
- Local elevator offers a basis of –$0.20/bu for December corn.
- December corn futures are currently $4.50/bu, but you believe futures prices may rise.
You sign a basis contract fixing the basis at –$0.20.
Later, before the pricing deadline:
- If December futures rise to $4.80/bu, your cash price becomes:
- $4.80 − $0.20 = $4.60/bu
- If December futures fall to $4.20/bu, your cash price becomes:
- $4.20 − $0.20 = $4.00/bu
Futures Only (HTA) Contract:
More commonly called a Hedge-to-Arrive (HTA) contract, is a grain marketing agreement in which the futures price is fixed now, but the basis is left open to be established later. This contract must be traded in 5,000-bushel increments.
Example:
- December corn futures = $4.50/bu
- Current local basis = –$0.25/bu
You believe futures prices are attractive but expect basis to strengthen later.
You sign an HTA contract and lock in:
- December futures = $4.50/bu
- Basis remains open
Later, before delivery:
- If basis improves to –$0.10/bu, your final cash price becomes:
- $4.50 − $0.10 = $4.40/bu
- If basis weakens to –$0.35/bu, your final cash price becomes:
- $4.50 − $0.35 = $4.15/bu
Minimum Price Contract:
A marketing contract that establishes a guaranteed minimum cash price for grain while still allowing the producer to benefit from some or all of a future price increase. It is typically created by combining a cash grain sale (or fixed-price contract), and the purchase of a call option in the futures market. This contract must be traded in 5,000-bushel increments.
Example:
- Current cash corn price = $4.50/bu
- Call option premium and fees = $0.20/bu
The elevator offers a minimum price contract with a floor of:
- $4.50 − $0.20 = $4.30/bu
Scenario 1: Prices Fall
Later, cash corn drops to $4.00/bu.
- The call option expires worthless.
- Producer still receives the guaranteed $4.30/bu.
Scenario 2: Prices Rise
Later, cash corn rises to $5.20/bu.
- The call option gains value.
- After deducting option costs, the producer may realize a final price above $4.30/bu.