Mirror-Image Contracts
Every cash grain price has two pieces — futures plus basis. A basis contract and a hedge-to-arrive (HTA) each lock one piece and leave the other open, in exactly opposite directions:
- Basis contract: lock the basis now (say, 20 under December), price the futures leg any time before the contract deadline. You keep all futures upside — and all futures downside.
- HTA: lock the futures price now, set the basis later. You keep basis upside — and carry basis risk.
Both are elevator contracts, both usually carry a delivery obligation, and neither involves margin calls to you. The choice comes down to which half of the price you think is favorable today and which half you want to stay open.
When a Basis Contract Makes Sense
The classic setup is harvest time. Harvest basis is often at its weakest of the year — but occasionally a local shortage, a rail problem elsewhere, or strong export demand makes the posted basis unusually strong while futures sit at harvest lows. If you believe futures will recover into winter, a basis contract lets you lock the strong basis, move the grain, generate cash flow, and still participate in a futures rally.
One detail that catches producers: many basis contracts allow an advance — the elevator pays you a percentage of estimated value at delivery, with the balance settled when you price the futures leg. That can help cash flow, but the unpriced bushels are fully exposed to a futures decline. There is no floor.
When an HTA Makes Sense Instead
Flip the logic. If December futures at $4.80 are historically profitable for your operation but today's posted basis is wide, an HTA locks the profitable futures piece and gives you months to catch a better basis — often after harvest pressure passes. The risk is symmetrical: basis can widen further, and you are still obligated to deliver the bushels.
Some operations run both tools at once on different bushels, effectively averaging their way through the marketing year. Whatever you use, know your deadlines: every contract has a final date by which the open leg must be priced, and missing it means accepting whatever the market gives you that day. If you would rather manage the futures leg directly, a broker-assisted account lets you do the same pricing with futures or options — with margin calls on the exchange side, but full control of exit timing. Futures trading involves substantial risk of loss and is not suitable for all investors.