Authors: Will Maples, Mississippi State University, and Wendiam Sawadgo, Auburn University
Many articles published by Southern Ag Today reference the futures market. Given its importance, it is worth taking a step back to review what a futures market is and why it matters for agriculture. Futures markets are one of the most important tools available to row crop producers for managing price risk. At their core, futures markets allow buyers and sellers to agree today on a price for a commodity that will be delivered at a future date. This differs from the cash (or spot) market, where commodities are bought and sold for immediate delivery.
While futures markets have existed in various forms throughout history, the modern agricultural futures market began in Chicago in the late 1800s. It developed to address a core challenge in agriculture: sharp seasonal price swings. At harvest, abundant supplies pushed prices lower, while tighter supplies later in the marketing year drove prices higher. This made planning difficult for both producers and buyers. Early forward contracts helped, but still carried risk, as they were customized and depended on both parties honoring the agreement. Standardized futures contracts, traded on exchanges such as the Chicago Board of Trade, created a more reliable system with greater certainty of performance.
In simple terms, a futures contract is a standardized agreement to buy or sell a specific quantity of a commodity at a set future date. Each contract defines the delivery time, quantity, and quality of the commodity. For example, a December corn futures contract represents 5,000 bushels of #2 Yellow corn for delivery in mid-December. The only element not specified is price, which is determined through trading on the exchange.
Because price is determined through trading, futures markets play a central role in price discovery. Prices in these markets reflect the collective expectations of buyers and sellers for future supply and demand conditions. New information, such as changes in weather, yield expectations, exports, or policy, are quickly incorporated into futures prices. As a result, futures markets provide a transparent and forward-looking estimate of commodity values. For producers, these prices serve as a key reference point when making marketing decisions and evaluating potential profitability.
One important point is that trading a futures contract does not involve the exchange of the physical commodity. Instead, what is being traded is the obligation to deliver or receive the commodity at a future date. These obligations can be offset prior to delivery. For example, a producer who sells a futures contract is guaranteeing delivery at a future date. The producer can then offset that position by later buying that same futures contract. Because positions can be offset, most futures trades do not result in physical delivery. This structure also allows individuals without direct access to the commodity to participate in the market. These participants, known as speculators, play an important role by providing liquidity and taking on the price risk of hedgers.
Hedgers are individuals who buy or sell the underlying commodity and use futures markets to manage price risk. Row-crop producers fall into this category, as they produce the commodities underlying these contracts. For them, the futures market is a risk management tool rather than a speculation tool.
Consider a soybean producer in May who plans to sell at harvest. That producer faces the risk of prices falling before October. By selling a November soybean futures contract in May, the producer can establish a price level. At harvest, the producer sells soybeans in the cash market and buys back the futures contract. Gains or losses in the futures position offset changes in the cash price, helping stabilize revenue. While the details of hedging are beyond the scope of this article, many Extension resources across the Southern Region provide additional guidance for using futures markets to manage price risk.
For producers, the key is understanding how futures prices relate to local cash prices and how those signals can be used in a marketing plan. While no strategy guarantees the best price, using futures alongside tools such as forward contracts, crop insurance, and storage can help reduce downside risk and create more consistency in revenues. Taking time to understand how these markets work can put producers in a stronger position to make informed marketing decisions throughout the year.
Maples, William E., and Wendiam Sawadgo. “What Producers Need to Know About Futures Markets.” Southern Ag Today 6(15.3). April 8, 2026. Permalink
