Forward Contracts for Grain

• grain
• contracts
• marketing

What is a forward contract for grain?

A forward contract is a private agreement between you and a buyer, such as an elevator, processor or feed mill. It sets the quantity, quality, delivery period and price before the grain is delivered. Unlike a futures contract, it is not traded on an exchange and its terms are negotiated between the two parties.

Extension marketing publications explain that forward contracting is one of several ways to price grain ahead of delivery, alongside hedging and basis contracts. It is simple to understand, which is why many farmers start there.

Some contracts fix the whole cash price, while others fix only the futures price or only the basis. Knowing which piece you are locking in explains why two contracts that look similar can pay very differently.

What are the main contract terms to read?

Read the whole document, not just the price line. Look at the commodity and grade, the delivery window and location, the quantity, how moisture and damage are discounted, and when payment is made. Note whether the price is a flat cash price or tied to futures and basis.

Pay close attention to the sections on default, quality discounts and what happens if you cannot deliver the full amount. These are the places where a good-looking price can quietly turn into a poor deal.

• Quantity, grade and delivery window
• Delivery location and who pays freight
• Discount schedule for moisture and damage
• Payment timing
• Penalties for under-delivery or late delivery

What happens if you have a short crop?

This is the biggest risk. If drought or disease leaves you with less grain than you contracted, you may need to buy grain to fill the contract, buy out the contract at current market value, or negotiate with the buyer. If prices have risen, buying out can be costly.

Many farmers contract only a modest share of expected production before the crop is made, increasing the share as yield becomes clearer. Crop insurance can help protect the revenue you would need to meet commitments, so discuss your contracts with your insurance agent.

When does a forward contract make sense?

It fits when the offered price covers your cost of production with a margin, when your lender wants predictable revenue, or when you simply want part of the crop sold so you can focus on operations. It also suits farms with reliable yields and good storage or delivery logistics.

It fits less well if you expect a rally, if your yield is highly uncertain, or if you do not trust the buyer's financial strength. In that case consider smaller amounts or other tools.

Storage matters too. If you plan to deliver later in the year, compare the offered price with what the market is likely to pay at harvest, and include the cost of holding the grain until delivery.

How do you check the buyer?

A contract is only as good as the company behind it. Ask whether the buyer is licensed and bonded as required in your state, how long they have operated, and whether other farmers in your area have been paid on time. Your state department of agriculture can explain licensing requirements.

Get the agreement in writing, keep a copy, and confirm any verbal changes by email or amendment. If the contract is large or unusual, have an attorney familiar with agriculture review it first.

Keep notes of your conversations with the buyer, including dates and names. If a dispute ever arises, written records of what was agreed carry far more weight than memory.

How do you fit contracts into a marketing plan?

Treat forward contracts as one layer. A written marketing plan might price a portion early, leave a portion for storage or later sale, and set target prices tied to your costs. Each contract should have a reason in the plan.

Keep a simple log of contracted bushels, delivery dates and prices so you always know how much is committed. Share it with your lender at planning time, since contracted sales can strengthen a cash flow projection.

What questions should you ask before signing?

Bring a short list. Ask what happens if the crop is short, whether there is a roll or extension option, how quality discounts are measured, and when payment arrives after delivery. Ask whether the buyer will accept partial delivery and what notice is required.

Compare offers from more than one buyer when you can. A few cents of difference in price or terms adds up over many bushels, and a buyer who answers questions openly is usually a good sign.

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.