Basis Contracts and Marketing Strategies

• basis
• grain
• marketing

What is basis in grain marketing?

Basis is the local cash price minus the futures price for the same commodity and delivery month. A cash bid of a certain amount under futures means the basis is that amount weak, or negative. When local demand is strong or supplies are tight, the gap narrows and basis is said to strengthen.

Extension marketing specialists point out that basis tends to follow seasonal patterns shaped by harvest supplies, storage space, transportation and local processing demand. Keeping your own basis records for several years shows you what is normal for your elevator.

A simple habit is to record the cash bid and the futures price on the same day each week during harvest and again in spring. After a few seasons, you will see how wide basis tends to be at the times you usually sell.

Why does basis matter as much as futures?

Your final price is futures plus basis. A farmer who locks in a good futures price but sells at a historically poor basis can end up with a disappointing result, and a farmer who watches basis can sometimes earn more simply by choosing when and where to deliver.

Basis also differs between buyers, rail loading points, river terminals and processors. Comparing bids from several locations, after accounting for freight, is one of the cheapest ways to improve returns.

Ask your buyer how they set bids. Elevators price in freight costs, storage space and their own sales commitments, and understanding that logic helps you judge when a bid is fair and when it is just convenient for them.

How does a basis contract work?

In a basis contract, you and the buyer agree on the basis now, and you set the futures price later, before a deadline stated in the contract. It is useful when basis is strong but you believe futures may still rise. You protect the part you think is good and leave the other part open.

The risk is that futures can fall before you price them. Most contracts include a date by which you must fix the futures price, and some include fees or rolling charges, so read the paperwork closely.

A basis contract can also be a tool for lenders to see predictable income. If you expect to price futures later, tell your lender what the plan is and what price level will trigger it.

What is a hedge-to-arrive contract?

The reverse arrangement is a hedge-to-arrive, sometimes called a futures-fixed contract. Here you set the futures price now and leave the basis to be decided later. It suits a situation where futures look attractive and you expect basis to improve by delivery.

Several farm marketing problems in past decades came from these contracts, particularly when futures rallied and basis weakened and farmers needed to roll positions forward. Know exactly what rolling will cost before you sign.

Most farmers who use these contracts treat them as small tools, not the center of the plan. Limiting how much you commit helps you avoid being forced into a poor decision.

How do these tools fit into a marketing strategy?

A sound strategy blends tools. You might forward contract a portion of expected production, use a basis contract on another portion, store some unpriced grain, and keep the remainder flexible. Each choice should link back to your cost of production and cash needs.

Write your plan down with target prices and dates. A written plan makes it easier to act when the market moves, and to avoid decisions driven by fear or excitement.

• Know your breakeven price per bushel
• Track local basis history
• Compare bids across buyers and freight
• Spread sales across time
• Review the plan after each marketing year

What mistakes should you avoid?

Do not sign any contract you cannot explain in plain words. Do not forget delivery deadlines, since missing one can trigger penalties or a forced price. Do not assume last year's basis will repeat, because pipeline, weather and demand changes can shift patterns.

Also avoid pricing more grain than you can reasonably expect to produce. A short crop and a contract for more than you have creates trouble, particularly when prices rise.

Another frequent error is mixing up the contract names. Terms differ by buyer, so ask for a plain description of what is fixed, what is open and what deadlines apply.

Where can you learn more?

Land-grant university extension services publish free guides and often hold grain marketing workshops. University of Wisconsin and University of Idaho extension both have plain-language explanations of basis and hedging, and farmdoc daily from the University of Illinois posts regular commentary.

Talk through your plan with your lender and an extension marketing specialist. They can help you tie marketing choices to the cash flow your lender expects to see.

Last reviewed: November 12, 2026. Written by the Farm Money & Grants Editorial Team. Educational only, not tax, legal or financial advice. See our editorial policy.