The Mechanics
You agree to deliver a set quantity at a guaranteed minimum price. Behind the scenes, the buyer prices the bushels at today's forward value and purchases a call option in the relevant futures month. If the market rallies, the call gains value, and that gain is passed to you on top of the minimum. If the market falls, the call expires worthless and you still receive the floor.
The floor is not free. A typical structure: forward price today is $4.80, the call premium and fees run 25 cents, so your minimum price is about $4.55. You have paid a quarter for the right to enjoy a rally. Whether that trade is attractive depends on how much you value sleeping at night versus keeping the 25 cents.
Strengths and Weaknesses
- Strength: a true floor with open upside — the marketing equivalent of revenue insurance on price alone.
- Strength: no margin calls to you; the elevator carries the exchange side.
- Weakness: the delivery obligation is firm, like any forward contract. A short crop still means a buyout, and the buyout math ignores your floor.
- Weakness: you pay for the call whether you need it or not, and the elevator's fee is baked in. The floor always sits meaningfully below the market the day you sign.
Do It Yourself with Puts
The same risk shape is available directly. Sell your cash grain forward or plan to sell at harvest, and buy a put option through a brokerage account. The put gives you the right to sell futures at the strike, so a market collapse is offset by gains on the put, while a rally costs you only the premium. Unlike the elevator version, you can exit the put any day the market is open, and there is no delivery obligation attached to the option itself.
The trade-offs: you pay the premium up front, you need an account, and futures and options trading involves substantial risk of loss and is not suitable for all investors. A broker-assisted account is built for exactly this kind of decision — someone who does this every day can walk you through strikes, months, and costs before you commit.